Auto Leasing
Car Leases Explained
Auto leasing can be incredibly complicated at times. You have to be really careful about what you agree to in a car lease. Otherwise, you might get stuck with a huge payoff at the end of your lease for excessive mileage or decreased residual value.
I highly recommend exploring the Lease Wizard website. They're the #1 auto leasing resource.Here's some important car leasing information:
What is the amount due when I sign the lease?
It can be made up of payments like security deposit, titles fees, capitalized cost reduction, monthly payments paid at signing, and registration fees.
Length of car lease term
It's common to find 24, 26, 48 and 60 months. But you will also find odd terms -- like 39 months. Make sure you keep track of your numbers; some odd-month deals may be designed to confuse you.
A 39-month lease based on the 36-month residual value of the car will give you lower payments -- but you'll pay more overall.
And you might be driving for three months without a factory warranty so a major breakdown could cost you big time in repairs.
End of the auto lease
The most common lease is a "closed-end" lease. With this deal, you return the car at the end of the lease, pay any costs due and walk away.
The dealer is guessing that he will get back a vehicle worth money to him (the residual value), so he takes the risk (and maybe loses if he guesses wrong) -- that means you pay more for this type of deal.
With an "open-end" lease, sometimes called a finance lease, you are doing the guessing. The payments will be lower than a closed-end deal, but when the term is up you pay the difference between the residual value stated in the lease when you got the vehicle and a fair market value of the car.
Disagreements over that fair market value, usually assessed by someone assigned to the job by the dealer, can lead to some unwanted hassles.
Other end of lease charges
In both cases read all the small print. You may think you only have to pay certain charges at the end of a lease, but there is plenty of anecdotal evidence of people being surprised at additional end of lease payments.
For example did you agree to pay a "disposal fee," a payment you make when you give back the car?
And be sure you understand exactly how the dealer decides what is "normal wear and tear" and "excess wear," and get him to put it in writing.
You can also re-lease the car, effectively leasing a used car with a whole new deal, or trade in any value left in it toward a new lease.
Free or fee miles allowance
Commonly, leases allow 12,000 or 15,000 miles before you trigger charges per mile at anywhere from $0.15 to $0.25 per mile.
That can add up in a hurry if you're not careful. Remember that the miles allowance is often negotiable.
Gap insurance
This insurance will pay the difference between what you owe on your leased vehicle and what it is worth if it is wrecked or stolen. You can get it with the lease or ask your insurance company.
Trade-in valuation
It may become part of the money you pay before you get into the lease car, or it may help lower monthly payments.
Make sure before you sign you can see where that trade-in money has been applied to what you are paying.
Lease default
Okay, so you don't expect that to happen, and neither does the dealer. But ask! You may want to know how you can keep the car through one troubled month when you can't pay -- find out how that would be handled.
But you may have to give up the lease and then you'll face an early termination charge -- find out what that would be.
Extending the lease
You can usually keep it going, month by month at the same price. But be sure that will not change the terms of the original lease or bring potential new costs into play when you finally turn it in.
The money factor
This is what we might call the cost of the money you are putting into the vehicle -- an equivalent to the interest rate you would pay on a new car.
The "money factor" will be a fraction that seems bewildering and meaningless to many people. But multiply it by 24 and you will have an indication of the interest rate you are paying for the lease.
That rate should be very close to the interest rate you would pay for a new car.
The money factor is a major consideration in auto leasing. If you don't understand it and you want to know more about where to find the best auto lease, hop on over to the Lease Wizard website.
Consider leasing a used car
A used car has already lost a huge chunk of it original value, a hit you don't have to take. But beware!
The basic rule of thumb say don't lease something too old -- a car that has just come off a two-year lease may be the best bet.
Make sure both the current capitalized value of the car and the estimated residual value at the end of the car lease are fair -- something much more difficult to do with a used vehicle.
Just like buying, leasing a used vehicle means those payments will be lower!
Remember the golden rule
Read every single word and number in your auto lease -- and be sure you understand them -- before you sign anything!
Consider using E-Loan BEFORE you lease
And don't forget the most important point. Avoid getting into a lease with a big downside at the end.
Compare what you'd pay using our Leasing Calculator versus using a car loan.
And remember, you can get pre-approved for your auto loan anytime at E-Loan.
That way, if the leasing deal isn't acceptable, you can write a check on the spot for your new car.
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