Understanding the Car Leasing Process

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - August 2, 2018

Many people think of leasing a car as nothing more than a long-term rental. Though the similarities are easy to see, there’s a bit more to the car leasing process that you have to pay attention to.

How Does Leasing a Car Work?

When you lease a car, you’re only paying for the portion of the vehicle you use over the lease term. In order to better understand the process of leasing a car, you should first understand the basic terminology of leases:

  • Capitalized Cost – Referred to as a “cap cost,” this is the negotiated price of the vehicle you’re leasing at the beginning of the process. Much like the purchase price of a car, you’ll want to negotiate this down as low as possible before you agree to anything. The cap cost typically includes any fees in addition to the the price of the vehicle.
  • Residual Value – Based on expected depreciation, this is the value of the vehicle at the end of your lease. What you pay is the difference between the cap cost and the residual value.
  • Cap Cost Reduction – This is much like a down payment is to a car purchase. But unlike a down payment, a cap cost reduction won’t reduce the amount of money you pay overall, it only pre-pays that amount. It does, however, reduce the amount of your monthly lease payment.
  • Money Factor – This is the finance charge, expressed in decimals and similar to an interest rate you might see if you were purchasing a car. It’s always a good idea to ask the lender what the money factor is before you lease. To convert it to an interest rate, multiply by 2,400 (the sum will be the annual percentage rate – or APR).

There are a few other common lease terms you’re likely to hear when you’re visiting a dealership at the beginning of your leasing process, but these are the main ones to be concerned with.

Keeping in mind that a lease is only for a set term, you typically have two options when the term is up: to return your lease vehicle and walk away, or buyout your lease for the residual value of the car plus any fees.

The Steps of the Car Leasing Process

Leasing a car involves several steps:

  1. The first thing to do is research. Check out the type of vehicles you’re interested in, decide which ones meet your needs, check safety ratings, and reliability.
  2. Then, check local lease deals and find a dealer you’re interested in leasing from.
  3. Finally, you should test drive these vehicles, and negotiate the price you’re willing to pay. Be sure to keep the overall cap cost in mind – don’t just focus on the monthly payments. Also, be realistic about your mileage and purchase more up front, if necessary.

Is a Lease Car Right for You?

When you’re considering a lease car make sure to determine if it’s the right choice for you. All things being equal, leasing a car vs. buying a car can be a tough choice. But, sometimes, your situation can help make that choice clearer.

If you need a daily driver to get to and from work and to run errands, and only occasionally go out for an extended drive, a lease can be a great alternative to financing a new car. It’s also a good deal for someone who’s particular about car care and wants to drive the latest and greatest vehicle every few years.

On the other hand, if you have a long commute to work on a daily basis, frequently drive to out-of-town destinations, play soccer mom to the whole team, or drive around with your dog daily, a lease might not be right for you. In situations like these, mileage restrictions and extra wear and tear can cost you in the end. Another thing to consider: if you’re accident prone, minor dings and scrapes can really add up when you turn in your lease vehicle at the end of its term.

One other situational factor to consider is your credit. It can be difficult to qualify for a lease deal if you’re struggling with low credit. Car leasing tends to be easier to come by if your credit is 700 or higher.

Start Your Process Here at CarsDirect

If you think leasing is right for you, you can start researching vehicles right here. But if you don’t think your credit will stand up to the qualifications of leasing, don’t give up hope. At CarsDirect, we know it can be tough to get the vehicle you need when you’re struggling through credit issues.

That’s why we work with a nationwide network of special finance dealerships that have lenders available to work with people in many credit situations. You might be surprised by how our dealers can get you into the right vehicle for right now. Plus, an auto loan is a great way to build your credit. So, hopefully, after your loan you’ll be able to jump into a lease deal the next time around.

Don’t hesitate any longer. Fill out our online auto loan request form to get started today!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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