8 Things You Need To Know About Leasing a Car

November 22, 2019

Leasing means to rent a car for a certain time period by signing the agreement on the agreed amount of money.

Buying a new car is expensive but leasing is one of the cheapest ways to get a new car.

People in the U.S live on a monthly budget and look forward to pay on a monthly basis and more than half of the new cars go for lease because of the low monthly cost.

Advantages of Leasing a Car

When we talk about its benefits then leasing a car is beneficial only for a short time span in comparison to buying a car. To avail of its benefits what you can do is go for a long-term leasing option.

  • Here are advantages of leasing a car:
  • No need of any down payment or less down payment
  • Low repair cost
  • low sales tax
  • Low Monthly payments
  • Very fewer obligations as in the end you have to hand over the keys
  • Every new vehicle comes and once you are done with one lease you can choose another new car in the market. This lets you drive the new cars in the market by spending a small amount of money.

Lease Terms:

Lease terms are made for 2-4 years. Lease varies from person to person, how the lease contract is made. Every lease agreement has a different length of term and mileage cap ranging between 12,000-15,000 miles/year.

You should undergo the common Contract Terms to avoid any kind of confusion in leasing contracts.

Here are the 8 things about leasing a car:

1.) Leasing a Car may affect your Credit Score:

Leasing a car affects similarly just like a car loan affects your credits. When you apply for a lease then a credit inquiry is done which has a very small effect on your credit score. When we go for lease then credit utilization also increases and can adversely affect your credit score.

2.) Lease Terminology:

Lease terminology is to make you understand the terms of the lease. Here is the terminology you need to know:

  • Capital Cost Reduction:

Capital cost reduction means down payment. Favorable leases in which the customer is intended to purchase the car at the end of the lease.

  • Capitalized Cost:

Capitalized cost is the MSRP(manufacturer’s suggested a retail price and it may vary according to negotiations.

  • Money Factor:

The factor is the rate of interest. The number has to be multiplied by 2.4 to get an APR. Lease interest rates range from 2-3 times more than traditional car loans.

  • Residual Value:

Value is the estimated cost of the car at the end of the lease agreement. In a lease, the down payment is given in the form of pre-payment.

  • No Down payment required:

The only benefit of leasing a car is you don’t have to give down payments. In leasing depreciation risk shifts from customer to the manufacturer. As in the case of down payment the risk moves from customer to manufacturer.

3.) Negotiation in Lease:

As we know, car lease directly comes from the manufacturer rather than from a bank. So, it is easy to negotiate a lease. Capitalized cost is reduced when we want to negotiate. People with a good credit score can ask for reducing the lease easily.

4.) Fees:

Fees are paid in 3 installments by the lessee during the lease period. First fees are considered as the financing fees. This not at all considered as the down payment.

These fees may vary from $500 to $1,000.

5.) Insurance:

Leasing helps you pay less monthly installments as compared to traditional financing. But the only problem is increased insurance rates disturb the monthly cash flow advantage. To avoid such situations “Gap Insurance” should be purchased.

6.) Repairing:

In the case of repairing and maintenance, lessees have to bear the charges during their lease period.

New Car requires very little maintenance.

7.) Lease Exit:

When your lease period is about to get over then you have to decide whether you want to purchase the car or return it. If you are in a mood to buy a car then what you can do is you can negotiate its capitalized cost. Another option is to buy it at the cost lower than the cost of a used car and sell it instantly.

8.) Avoid Leasing a Car:

Leasing involves high-interest rates and if you find it inexpensive then don’t lease. The low monthly installments always attract the customers but it is quite expensive in the future. If you are unable to afford monthly installments then don’t opt to lease.