Leasing a car has its advantages, such as an affordable monthly payment. It also has drawbacks, including mileage restrictions and excessive wear and tear risk.
To calculate your monthly payments, the dealer estimates what the car will be worth at the end of the lease, known as its residual value. The higher the residual value, the lower your payments will be.
How long will the lease last?
Leasing a car can be a great way to get behind the wheel of a new vehicle without the commitment of buying. But before you sign on the dotted line, it’s essential to have some questions to ask when leasing a car. You’ll want to consider the length of the lease term. Leases typically last from 12 to 36 months. Lease terms vary among leasing companies; some offer shorter or longer terms.
Car leases typically have a mileage limit, which you’ll want to consider before you sign your contract. Unless you pay for additional mileage up front, the dealer will charge you a fee per mile driven over your lease contract’s allotted miles.
Consider whether the lease contract includes gap coverage, which pays the difference between what you owe on your lease and the value of your vehicle if it is totaled. This coverage is often sold separately from a standard auto loan. It’s available from some auto insurers and leasing companies.
What is the money factor?
Similar to the interest rate on a loan, the money factor in a car lease determines your monthly payments. It is often expressed as a decimal but can be converted to an APR by multiplying it by 2,400.
This figure, the residual value, and other factors help calculate lease payments. While dealers are not required to disclose the money factor (and most don’t), it is crucial and should be negotiated, just as you would with other lease elements, such as the residual value or drive-off fees.
A lower money factor will result in a smaller monthly payment and a shorter lease term. Ask for the money factor upfront and compare quotes. Consider how many miles you plan to drive each year, which can significantly affect your costs.
Are there any lease specials or incentives available?
Leasing is a great way to get more car for your monthly financing payment. However, leasing jargon often needs to be clarified, and the fees and add-ons can quickly add up to a huge bill.
Be sure to ask about any lease specials or incentives on the vehicle you’re considering. The manufacturer may be offering a lower monthly rate or a reduced residual value that can dramatically cut the total cost of the lease. Also, be sure to check for a lease purchase option at the end of your lease. It allows you to purchase the car for the residual value. Some dealerships use these to attract customers with poor credit who want a more accessible way into a new vehicle. These deals typically come with high drive-off charges.
Can I buy the car at the end of the lease?
Leasing can offer a lower monthly payment than a car loan, but it’s important to remember that the vehicle will be yours only at the end of the lease. Ask about the lease-end buyout price and associated fees, such as a disposition fee and a penalty for exceeding the annual mileage limit.
Determine your driving habits ahead of time and select a mileage plan that aligns with them. Most leasing contracts include a maximum of 10,000, 12,000, or 15,000 miles per year, and going over that amount may result in extra fees at the end of your lease.
It’s best to know the car’s value beforehand, and you can do that by researching its market value online. Then, frankenmuth insurance compare that number to your lease contract’s residual value and purchase option fee.
Will I be able to negotiate with the dealer?
When you lease, the dealer is less likely to negotiate the vehicle purchase price with you. Instead, the negotiating points revolve around the money factor and the residual value.
A lower money factor and a higher residual value will decrease your monthly payment. You can lower the money factor by reducing your credit score, putting down more money, or shopping for a better deal.
Similarly, you can reduce the residual by buying extra miles upfront. Most leases come with a predetermined number of annual miles, and failing to adhere to that limit will result in extra charges at the end of the lease. You can also buy a mileage protection plan or additional warranty coverage. Ensure the dealer specifies what will happen if you exceed these limits and the cost.