If you’ve ever done pre-car purchasing research, you would’ve found A LOT of advice about buying cars, but very little about leasing them.
According to IHS Automotive, a quarter of all new-car buyers lease their vehicles. For luxury car shoppers, more than half of all drivers with a new Lexus, BMW or Mercedes-Benz are leasing their new cars.
Here’s what you need to know before you decide to lease a car.
- First of all, it’s important to know that while financing is a relatively straightforward process, leasing is not.
- Don’t expect to pay the price you saw on TV. If you see an advertisement for a civic for $2,999 down and $99/month remember that magic number is derived from an exact car that your local dealerships may or may not stock.
- Pay attention to the car’s residual value. Car manufacturers make up a car’s residual value. It’s the percentage of the asking price they estimate a car will be worth when the term is up and you drive it back onto the lot. Leasing a car that will hang on to its value costs you less than leasing a car that’ll come back a beater. So, a higher residual value lowers the lease cost.
- Use your calculator to figure out the real interest rate. This is the payment you’ll be making to the car manufacturer’s bank for the privilege of driving a bank-owned car.
- Shop more than just one lot to get the best deal. Dealers are legally allowed to quote you a higher money factor and refuse to disclose the exact rate calculated by the automaker’s bank, and just pocket the difference… so make sure you shop around!
- Prepare to pay a lot of extra ‘fees’. While it’s possible to avoid charges for excess mileage, damage and in some cases, modifying the car beyond factory spec or not servicing the cr at a franchised dealer easily, you can’t avoid the acquisition fee and a disposition fee that can add up to more that $1,000. If your credit’s not great, you’ll also have to pay a security deposit.
So, while leasing sounds great, there are a lot of things to consider before jumping into it…