Lease a Car

 

The lower the purchase price of the leased car, the better off you are. It is even worse to pay full retail price on a leased car because it will make your monthly payments higher and a lease car never gains equity value. At best, you can only walk away from it owing nothing on the last day of the lease contract and only if you have abided by all the lease rules. Contrast this to buying a new car where you will reach a break even point at some point in your payment term (unless you have one of those 6 or 7 year leases), where your car is now worth what you can sell it for .
I’ve seen people think they drive 12,000 miles a year when it is really 20,000. Most people don’t drive less than 20,000 miles a year. With a leased car, you pay a fixed cost for every mile you drive. Most lease cars have 12,000 miles allowed per year in the contract. Suppose you actually drive 15,000 miles per year. When it comes time to turn in the car, you have actually driven 3,000 miles more each year. Not only will you owe for the additional miles you have driven, you will also owe for the additional wear and tear on the car. Ouch! That is why it is better to overestimate rather than underestimate the number of miles you will drive your leased car. Also, you can usually buy the extra miles up front at a lower cost than when you turn in your vehicle.
If you really want a new car every two years, then make that your lease term.
I worked with one couple who had made all of the above lease mistakes twice and now realized it was better for them to buy a car, but they were $9800 upside down – meaning if they turned in their leased car and bought nothing, they still owed $9800! Not a way to get ahead in the world. The moral here is:
It is almost always better to buy than lease
The generally agreed exception is that you are a good lease candidate if you plan to keep your car only two years and you are a low mileage driver (under 15,000 miles a year). You might also be a good candidate if you can deduct your lease costs as a business expense.
Changes in leasing contracts
There is a trend to make it easier to get out of lease contracts early. Some of these contracts will allow you to get out with only the loss of your down payment before a certain number of miles driven – for example if you return the car in the first 12,000 miles. In the past turning in your car early could have cost thousands of dollars in penalties. You won’t be able to just walk away, of course. You’ll have to make some alternate lease or buy deal.
If you are really determined to lease a car
Look for cars with leasing incentives. These are most likely to be cars that have lagging sales. Better deals will also be found on cars that hold their value.  Be certain you understand all the terms of the contract before you sign and that you abide by those rules during your lease – very important things like proper maintenance and service at an authorized dealer. You need GAP insurance when you lease a car unless you can afford to take the loss should your car be totaled out. If it is not part of the lease contract, you should purchase it separately.
Don’t lease longer than 3 years – the usual warranty period of new vehicles – so you don’t have to buy an extended warranty. After 3 years you will also start having higher maintenance costs.
Negotiate the cost of the car – just as you would if you were buying
Remember: Leasing a car is a similar process to buying a car. Negotiate the price of the car, then add on the sales tax, licensing fees, loan and any other costs. You must be insured either through the manufacturer or your private insurance agent. The lease will probably require a large sum down payment, first monthly payment, and security deposit. If you can avoid making a down payment, do so. If your car should be stolen or totaled for any reason, you will not get your down payment back, and your GAP insurance will cover the difference you owe.
There may also be other fees associated with the lease. F&I will probably try to sell dealer add-ons.
Some states charge sales tax on the price of the car. Others charge sales tax only on the portion of the car that is used on a monthly basis. This can be a huge difference. Find out which your state does.
Ignore the low lease fees you see advertised. These are usually based on a higher car price than you are going to pay, fewer miles than you are going to drive, and a bigger down payment than you might have to pay. So figure out the true costs and read the fine print.
Use the lease/buy calculators at Edmunds to help you determine whether leasing or buying is the best to go. Print out the information so you can refer to it as you go through buying your lease.
 
Do your research, set your final price, plan your offer strategy, negotiate the F&I maze – and you will not only buy your next car or truck at the right price, but you will be proud of your accomplishment and the money you bank.


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