We all want working vehicles with low mileage and little maintenance. We also don’t want to bleed our bank accounts dry. 

Leasing is an excellent alternative to purchasing a car. Read our car lease guide to learn all the benefits of car leasing and essential things to know as you look into it! 

What is a Car Lease? 

Car leasing is almost like renting a car but is far more flexible. Unlike car loans that help you pay for the entire price of the vehicle, car leases allow you a certain number of miles based on your car driving habits.

You’ll make monthly payments during the time of your lease, which is typically 24 to 48 months long. 

Once that lease is up, you can either return the vehicle or purchase it at a value less than the cost of a brand new car. You can see how leasing a car instead of buying it is an excellent decision if you’re in the habit of trading out your vehicles every few years.

The monthly payments for leases are typically lower than financing a car to purchase, taking into account the average cost of a car at $36,000, the average lease monthly payments will typically save you some bucks.  

Common Terms

When you begin looking into leasing a vehicle, you’ll come across many terms that may not make sense in context. 

·         Capitalized Cost Reduction - This is similar to a down payment and can make your monthly lease payment lower. However, down payments for leases may not be required. 

·         Trade-in Credit - This is the value of your trade-in vehicle that goes towards your new one - it’s used to reduce your monthly payment. 

·         Lease Inception Costs, Get-In Fees, Drive-Off Fees - All of these terms refer to the fees required to begin your lease. 

Car Lease Payments

Your monthly payment for your leased car is based on: 

·         Capitalization Cost

·         Residual Value

·         Money Factor

The lower your capitalization cost, the lower your monthly payments will be. This is the amount you have to pay for the use of the vehicle. It takes into account the value of the car at the beginning of the lease, along with extra fees, taxes, etc. 

The higher your residual value, the lower your monthly payments. This is how much the leasing company expects the car will be worth at the end of your lease, as putting miles onto your vehicle depreciates its value.

The residual value is calculated by the number of miles you’ve agreed to drive each year and the lease’s term. Be sure to get an accurate estimation of the car’s residual value as possible, as this can be a crucial point during negotiations. 

The money factor is another word for interest. It’s what you pay for the risk the leasing company is taking on by trusting you to make payments in time. These are written as long decimals and can be converted to APR by multiplying the number by 2,400. 

Credit Score

Your credit score plays a role in the quality of your lease. A good credit score will give you the extra flexibility to negotiate better rates. A bad credit score could do just the opposite. 

To be on the safe side, it’s recommended to have a credit score of 670 or more. An excellent credit score is 710 and up. If you have a bad credit score, no matter the reason, try to make sure you are taking steps to improve upon your situation.

Your credit score consists of: 

1.     On-time payment history

2.     Amount of different credit facilities you hold

3.     How many times you’ve tried to get credit 

4.     How old your credit facilities are

5.     The amount of credit you have available compared to how much you use

Mileage Agreement

You must have an accurate assessment of how many miles you’ll need for a given year. If you go above the minimum mileage rate you’ve agreed on the lease contract, you’ll be charged a penalty per mile, which can add up to a hefty amount. 

The fee can be as much as $0.30 to $1.00 for every mile over the limit. Many leases cap your annual mileage at 10,000, 12,000, and 15,000 miles. Take into account any vacations you’ll be taking over the years, your daily commute, and extra miles for pillow room.

Although a lower mileage cap will translate to less expensive monthly costs, you don’t want to be in the position of having to pay for extra miles.  

Gap Insurance

Many lease agreements also bundle in gap insurance with their costs, but you’ll want to ensure your dealership is offering this. Gap insurance is the value of your car minus what you still owe for your lease. 

If you wreck your car beyond repair without gap insurance, you’ll be required to pay out-of-pocket any leftover residual cost to the dealer that your insurance doesn’t pay.

Car Lease Guide: Driving the Car of Your Dreams 

Hopefully, this car lease guide has given you some of the tools you need to lease the car of your dreams. Purchasing a vehicle is costly, and after many years of use, you’ll be selling it for far less than you initially paid. 

Leasing cars gives you the affordable flexibility of trading it or purchasing your car at the end of its lease period. You’ll be driving newer cars while still paying less in maintenance and monthly fees than you usually would.

Check out our new 2019-2020 vehicle inventory today to find the car of your dreams! 

Categories: New Inventory
Tags: Car Lease