Understanding How to Lease a Car

It seems that many people have the wrong idea when it comes to how to lease a car. Leasing a car basically means you rent the car for 3 or more years and must give it back to the leasing company at the end. There are some key advantages to leasing. Your monthly payments won’t be as high, you can establish credit if you couldn’t get a car loan and you get a better car than you can actually afford if you were buying it. So, if you haven’t established credit or need a better car than you can afford to buy, this may be the best option for you.

To secure a lease, you go to the dealer as if you were buying a car, decide which one you want and then see if there is a lease option. The dealership takes care of the paperwork for the leasing company, which is usually a banking institution. Along with the many advantages of leasing there are a few disadvantages—so beware. 

The selling price of a leased car is called the gross cap cost. The higher the gross cap cost, the higher your monthly payment will be. In order to get a good “leasing” deal, one must negotiate a better selling price. It’s just like buying a car. 

There are more negotiations that should be done when leasing versus buying. Try to get the dealership not to charge you for doing the paperwork, and try to pay no bank fees or security deposit as well.

When you lease, you only pay based on the depreciation and interest. At the end you have no equity in the car and you’ve paid tons in fees to the dealer. If you want to turn in the car at the end of the lease period and don’t want to lease another or buy the car, you will have to pay more fees. Bear this in mind: a car depreciates 50% whether you lease it or buy it. So, if you can afford to buy it, do so. You will have equity and be able to trade it in or sell it to someone else. 

Most leases come with mileage limits. These limits can be as low as 10,000 miles to about 15,000 miles per year. If you go over those limits you pay penalties. If the leasing company doesn’t agree with 15,000 before you lease the car, be very sure you’re going to stay under the mileage restrictions or you could end up paying thousands extra. You are also going to have to have higher insurance on a leased vehicle which translates into higher monthly payments for insurance. 

When you turn the car in, ask the leasing company if they will sell the car for less than they want for it. Offer less than market value. Most leasing companies will negotiate because they don’t want another used car on their hands. If you don’t buy it, its going to go to auction and they have no idea how much they will actually get for it. 

Treat leasing a car just like buying one. Negotiate for the best price and the best options of your lease and know what you are getting into so you don’t have to pay a big price at the end of the lease.