When you’re in the market for a new car, there a number of different ways in which you can go about making your purchase. You can, of course, buy the car outright or finance it, but there’s another way that’s quite popular: you can lease a new car.
The simplest way of explaining a new car lease is thus: It’s basically like doing a long-term (usually two-years long) rental of a vehicle. For a great many auto buyers, going the leasing route may make more sense than simply purchasing a new car outright or financing it.
If you’re interested in new car leases and want to know whether or not doing so is right for you, then read on. We’ll be covering everything you need to know below.
What a New Car Lease Actually Is
When you lease a new car, you’re essentially entering into a financial arrangement with a bank. The bank owns the vehicle and is the lessor, and you become the lessee.
On the surface this might seem identical to financing a vehicle, but a lease is different for one key reason. When you lease a new car, your financial arrangement isn’t for the full value of the vehicle. Instead, the arrangement is meant to cover the depreciation of the vehicle’s value for the period during which you are driving the vehicle, as well as for the miles you put on the vehicle. This is unlike a financing arrangement, under which you are liable for the full value of the vehicle.
For example, consider a vehicle that’s worth $10,000. Over a three-year period and/or 36,000 miles, the vehicle’s value is expected to depreciate by 60%. When you lease that vehicle, you will be paying back the value of the depreciation, $6,000 (in addition to taxes and other fees), over a 36-month period.
After that lease period ends, you will be required to return the vehicle to the dealership. At this point, you can either begin a new lease with another new vehicle, or you will usually have the option to purchase the vehicle outright for the remainder of its value.
Why You Might Want to Lease a New Car
Given how the lease arrangement works, there may be a number of different reasons for which you may want to go this route as opposed to financing or purchasing the vehicle for cash.
Chief among those reasons is that you will typically pay less on a monthly basis for a leased vehicle than you would for a financed one. Rather obviously, this is good news for individuals who may find monthly cash flow to be a bit of a struggle.
Another reason you may wish to lease a new car comes down to maintenance. Since you will have possession of the vehicle for only the first two to three years of its lifespan, you most likely won’t be faced with any of the costly maintenance issues that face older, high-mileage vehicles. Further, when you lease a vehicle, any routine maintenance that you’ll need to have done over the term of the lease will typically be covered by a warranty. This means you won’t have to worry very much about paying for maintenance and repairs out of pocket.
Finally, many people who lease vehicles are attracted to the prospect of being able to get behind the wheel of a new car every few years. In the same way in which you might upgrade your smartphone every two years, so too will you be able to upgrade your vehicle. That’s no small thing!
Why You Might Not Want to Lease a New Car
The benefits of leasing are readily obvious. However, there may be a few factors that could dissuade some auto buyers from going this route.
Most notably, you should consider how much you actually drive in a given year. If you’re the kind of person that has a long commute and puts tens of thousands of miles on a vehicle every year, then leasing may not be for you. When you go over your allotted mileage, you will end up having to pay a fixed rate for every additional mile over your lease agreement.
Now, when you sign up for your new car lease, it is possible to negotiate for a higher mileage cap. However, depending upon how many miles you’re adding, it may get to the point where it makes more sense to finance rather than to lease.
Next, be sure to consider what kind of a vehicle owner you really are. Do you have a habit of being rough on your vehicles? Are you hard on the brakes? Do you often get into ‘fender benders’ or cause superficial damage to the vehicles you drive? If so, then leasing may not be ideal. Leases come with ‘wear-and-tear’ clauses, which could cost you at the end of your lease if you do not keep the car in near pristine condition.
Finally, while the monthly payments for leases are low, the long-term savings are better with financing. If you’re reasonably certain that you’ll keep a vehicle after a two-year period has elapsed, then it may make more sense for you to finance rather than to lease.
What Do I Need to Know When I Lease a New Car?
If you intend to lease your next new car, then there are several things that you’ll want to understand, which will determine the extent and nature of the lease agreement into which you’re entering.
Naturally, one the primary factors that you’ll want to consider is the sale price of the vehicle. Necessarily, the lower that sale price is, the less you’re going to end up paying for your new car lease. As such, be sure that you’re researching the value of vehicles that you want to lease and that you’re not getting raked over the coals by a dealership. Further, it never hurts to negotiate the sale price down, if possible.
Just as important as the actual sale price of the new car that you’re leasing is the ‘residual value’ of the vehicle. Essentially, the ‘residual value’ is the percentage of the vehicle’s sale price that you would end up paying to the lessee at the conclusion of the lease. As such the higher this percentage is, the lower your monthly payments are going to be over the term of your lease.
Next up, you’ll want consider the number of allotted miles that are part of the lease. It’s important to understand how many miles are covered by the lease and to weigh that mileage against how much you actually intend to drive the vehicle.
Now, when you hit that allotted number of miles, that doesn’t mean you have to stop driving the vehicle. Instead, when you go over your mileage allotment, you will pay an over-mileage charge per mile over the allotment. Typically speaking, you’ll find that these charges typically fall somewhere in the range of 15 to 25 cents per mile. This means that if you were to go 4,000 miles over your limit, you would be liable for an over-mileage fee of somewhere between $600 and $1,000.
If you think that you’ll be putting more miles on a car than would be covered by a standard lease, you do have options at the outset. You can negotiate for this overage miles when you lease the new car, which will allow you to pay a lower per-mile charge. Also, should you decide to purchase the vehicle once the lease ends, you will be able to avoid paying the overage fees – something to keep in mind.
The next thing you’ll want to take a look at is something known as the ‘disposition fee’. In a nutshell, this is the fee that the lessee charges for cleaning the vehicle up at the conclusion of the lease. The lower the better here, obviously, although these fees are not usually that exorbitant. Generally speaking, they range between $300 an $400. Again, should you decide to purchase the vehicle at the conclusion of the lease, you will not be liable for the disposition fee.
Finally, you will want to take a look at something known as the ‘money factor’. For leases, this is the equivalent of APR. The money factor is usually expressed as an incredibly small number in the thousandths or tens-of-thousandths. Here, it might be useful to convert these numbers to their equivalent APRs. To do so, simply take the money factor and multiply it by 2,400. Naturally, the lower this figure is, the better for you.
How to Get the Best Deal on a New Car Lease
Now that you understand the different factors that go into making up a new car lease, you’ll necessarily want to understand how to get the best deal. As with buying a vehicle outright, there are a number of different things you’ll want to consider and things you can do to ensure that you’re getting the most attractive lease in your circumstance.
First, be sure to take a look at lease deals that your preferred carmaker or carmakers are offering. The special terms of these leases are often better than what you might get for any non-special vehicle, so they’re eminently worth considering. To find out about these deals, you can check the website of your preferred carmaker, or else you can contact individual dealerships to find out about lease specials they may be offering.
Aside from looking for special lease deals, you’ll also want to make sure that you’re shopping around. Each dealership will be willing to offer different kinds of leases on different vehicles, so you’ll want to check with multiple to see what’s out there.
As you shop around, though, do remember that it’s important to compare apples with apples. Oftentimes, those who are inexperienced with new car leases will spend too much time fixating on the sale price of the vehicle. Instead, you want to weigh all of the different factors that make up the lease. Most importantly, you want to get a sense of what the ‘out-of-pocket’ cost for the lease is going to be.
To do the above, you’ll want to get complete lease quotes from every dealership that you contact. This quote should include all of the information outlined above, the down payment, taxes, and registration and other fees. In conjunction with these payments, you will then want to compare the monthly payments of the lease to understand which offer is going to be the best deal in your particular circumstance.
By doing the above, you should be able to find a lease for a new car that will make sense for you. But, before you sign on the dotted line, be sure that you do your due diligence. Ask the dealership to provide you with a breakdown of every aspect of the lease. Then consider using an online resource to make sure that what you’re paying is in line with what other consumers are paying in your area. It should be, be it never hurts to check!
Get a New Car Lease Today
Those who are unfamiliar with new car leases often think that they’re inordinately complicated. The truth is otherwise. Leasing a car is actually a relatively straightforward affair, provided that you understand the terms of a lease and how to get the best deal.
After you’ve leased a new car, be sure that you keep all of the things discussed above in mind. In order to ensure that you’re ultimately not overpaying for your vehicle, it’s important that you always keep your mileage allotment in mind. Further, remember the ‘wear-and-tear’ clause and how that might affect what you ultimately end up paying for the privilege of having the vehicle for the two or three years of the lease agreement.
If you take all of the above factors into account, you should find that leasing a new car may be the very best way to own a vehicle. Happy lease hunting, and enjoy your new car!