10 Things You Need to Know About Leasing a Car
Learn everything you need to know about successfully and safely leasing a car.
Car Leasing Know How
Leasing can be a great way to get a new car or truck every two or three years and never have to worry about repair bills. The down payment and monthly payments are lower than buying, making leasing initially more affordable. In addition to the joy of driving a new car, the lower payments allow you to drive a car or truck you couldn’t otherwise afford. As long as you take care of the car and don’t drive more than 12,000 miles per year, you can walk away at the end of the lease and try a different make and model next time. Over the long run, leasing always costs more than buying. But if you follow the tips we list here, you can avoid the most common leasing mistakes and even beat the deals you find in the leasing ads.
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Choose Models for Reliability and Resale
Lease a make and model with a reputation for reliability and high resale value to get a lower monthly payment. Rare or trendy cars depreciate quickly, and you pay for all that depreciation. Go online and check resale values before choosing a vehicle.
Negotiate the “Cap” Cost
The “capitalization cost” is the price of the vehicle minus its estimated value when you return it. Negotiate the vehicle price as if you were actually buying it. Go to edmunds.com and truecar.com, enter the vehicle information and see what buyers in your area are paying for the same vehicle. Print that out and hand it to the dealer to begin the negotiations.
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Be Careful with Mileage
Be realistic about how many miles you drive. Most leases allow 12,000 miles per year, but the “average” driver puts on 13,500. If you return with just 5,000 extra miles, you”ll have to cough up $750 more at the end of the lease.
Bargain for the Best Interest
You can negotiate the annual percentage interest rate (APR). But first you have to unpack it from the “money factor” shown on the leasing agreement. If the money factor is shown as a decimal, such as .0042, multiply it by 2,400 and you’ll see the interest rate is really 10.08 percent APR. If it’s listed as a whole number, such as 3.1, multiply by 2.4 to learn the real interest rate. Once you know the actual APR, you can bargain for a lower rate.
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Treat it Like a Newborn Baby
Take care of the vehicle or you’ll pay dearly. The leasing company allows for normal wear and tear but will charge big bucks if it’s returned with dents, scuffed wheels, paint chips, scrapes or stained upholstery.
Don’t Ignore Maintenance
You’re responsible for maintaining the vehicle according to the carmaker’s schedule. Maintenance costs and repairs that aren’t covered by the new-car warranty are your responsibility. Keep the receipts to prove the work was done.
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GAP Insurance is Smart
Lease cars from a leasing agency or dealer, but buy GAP insurance from your insurance agent. If the car is totaled in an accident, GAP insurance covers the difference between the vehicle’s actual value at the time of a total loss and what you still owe the leasing company. Your current insurance agent can usually save you money on GAP insurance.
Lease Cars Near the End of the Year
That’s when dealers are anxious to get rid of inventory and you’ll get the best lease deals. In addition to rebates and promotional pricing, the dealer may also be willing to negotiate or remove some fees.
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A Closed-End Lease is Best for Most Drivers
A closed-end lease means you don’t owe money at lease end as long as you don’t exceed the mileage limit and you return the vehicle in good condition. An open-end lease can result in a rebate if the vehicle brings more at auction than its estimated value, but you’ll have to pay the difference if it sells for less. If you’re willing to pay a bit more and avoid all risk at lease end, choose a closed-end lease.
Leasing is Never Cheaper than Buying
If instead of buying a particular vehicle outright, you sign two three-year leases for it, leasing will cost you about $2,000 more than buying.
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