Do you like driving a new car every two to three years? Do you feel like a new car better protects you from expensive car repairs? If so, leasing may be the right choice for you. First, however, here’s what you need to know about new car leases.
Edmunds.com identifies five easy steps to leasing that can serve as a starting point, but we’ve added a couple more to the list as well. The idea is to be as informed as possible before opting for leasing instead of buying your next new car.
1. You still need to stay within budget. Just because the lease payments allow you to get into a more expensive vehicle, compared to what you’d shell out in monthly payments on a purchase, doesn’t mean that you should exceed what’s comfortable for your budget.
2. You don’t need a loan. Leasing is like renting a car. Since the leasing company retains ownership of the vehicle, in essence what you’re doing is making monthly payments to rent its use during the term of the lease. So, you don’t have to worry about taking out a new car loan.
3. Your credit still does matter. Even though you’re not going to be applying for a loan, you still have to be considered a good credit risk by the leasing company. They’ll run a credit report on you, so make sure your credit passes muster—no late payments, consistently paying on time, etc.
4. Putting down cash is a good idea. Get an even better monthly lease payment by putting down some cash, say $1,000. This upfront payment can lower your monthly outlay considerably, in some cases.
5. Shop around for lease specials. Automakers frequently offer leasing specials that you can take advantage of. These include no down payment, no first month’s payment – although these lease deals may mean a higher monthly payment, or a special low-mileage lease deal. If leasing is an option for you, make sure you find the best deal around and keep in mind that lease payments are based on the car’s agreed-upon price. So, refrain from telling a dealer you plan to lease until you first negotiate a purchase price.
6. Negotiate from up from lowest purchase price. Find out what new cars cost the dealer that is the invoice price. Then, negotiate up from the lowest purchase price of the car you’re interested in with the options and features you want.
7. Get an auto insurance quote before you lease. You need to know what it’s going to cost to insure your leased vehicle – and it’s better to know this before you sign the lease papers. Some cars are more expensive to insure, particularly sports and sporty cars, luxury cars and cars with high claims history.
8. Know and review all lease terms. All new car leases are not the same, so you absolutely have to know and review all the terms of the lease to make sure you’re opting for the right choice. Read carefully the fine print, as federal law stipulates that certain facts be disclosed on lease agreements. Know the interest rate you’re being charged, any fees and taxes, the monthly payment, the car’s residual value, the amount of depreciation and the amount of miles allowed per year. You also may have to pay an acquisition fee as well as a disposition fee. If gap insurance is required, this has to be taken into consideration. Gap insurance takes care of the remaining payments if your leased car is stolen or totaled in an accident.
9. Do a thorough walk-around at delivery. This is important so that you have the opportunity to note any scratches, dings or dents in the vehicle. Make sure you get a copy of the owner’s manual and an extra set of keys. Some dealers will include a full tank of gas upon delivery, possibly even a car detail. Ask any questions you have on the spot and don’t leave until you are satisfied you’ve gotten everything you need.
10. Manage your lease wisely. Just because you’re leasing a vehicle doesn’t mean you can ignore regular maintenance. In fact, a careful review of your leasing agreement will reveal that this is your obligation. Keep within your annual mileage allowance, typically 10,000 to 12,000 miles per year. Toward the end of your lease, it’s time to determine if you’ll turn the car in for another lease, buy out the lease for the residual price agreed upon in the lease agreement, or turn in the car and purchase a replacement. You may even be able to do a month-by-month lease continuation while you finalize your decision.