Owning a car is one of the sweet dreams we all have. What isn’t too sweet are the hefty monthly payments that come with car ownership. That is where leasing may be a better option.
Leasing a car in most instances allows people to drive a new car for a more affordable price compared to the monthly fees for owners. Unless the contract states an option to buy the vehicle from the dealership, once the lease ends, the car goes back.
Leasing is basically paying to drive new cars even when you don’t completely own them. In this article, we will talk about how to lease a car and the mistakes people generally make throughout the process– and ofcourse how to avoid these mistakes!
The Four Steps to Successfully Lease a Car
Leasing a car follows four general steps:
1. Find a vehicle you want to lease (make and model)
Consider your lifestyle when choosing the make and model. Do you have a big family? Do you like going on road trips? Need a lot of storage? All these factors should be considered when making this decision.
2. Go to a dealership for a test drive of the car
Finding a dealership with the car model can also be challenging. Especially if you add getting a good deal into consideration
3. Look for a lease agreement.
Finding the perfect lease agreement is the next step. The most important thing is finding a lease agreement you’re happy with.
4. Finalize and sign your lease.
Once all the previous steps have been completed. The next thing to do is sign the lease, shake the dealer’s hand, take your keys, and drive away.
These are very general steps that each take a long time to do. But the article doesn’t end here.
We will look at the finer details of a leasing process and the things that you MUST AVOID. Leasing a car is one thing, but finding a great deal for a lease is another.
Car leases can sometimes be confusing for first-timers. Does it include insurance? Do I need to maintain the car? Some ambiguous terms may need some explaining.
There may also be some hidden fees buried in the fine print that people miss. In this article, we will look at some rookie mistakes to avoid so that you can have complete confidence to lease that car.
Seven Things You Should NOT Do When Leasing a Car
1. Don’t Jump The Gun
In the world of car leasing, M.S.R.P. means the manufacturer’s suggested retail price. Nothing is absolute yet. This means that you can negotiate, so don’t be afraid to do so.
The lease prices are usually based on capitalized cost (cap cost).
Cap cost is any additional fees included in monthly lease payments like acquisition fees.
These numbers can be negotiated for lower payment prices per month or lower down payments. It all depends on you.
Many other things can be negotiated, such as trade-in values, dealer fees, and add-ons like satellite radio, GPS, etc. You can also strike a deal with mileage caps. Thus, you can drive the car for longer, like from 10k miles a year to 12k.
Negotiating a lease is just like negotiating a vehicle you would buy. It all depends on what you need and what you want to pay.
2. Failure to Consider Residual Value
Not to be confused with Diminished Value, Residual Value is often what potential car owners look at when deciding on a car. People who would like to lease a vehicle should do the same thing.
High residual values translate to selling or trading the vehicle at higher prices after being fully paid by renting buyers.
What is often overlooked is that residual values also matter when leasing a car. Lease payments depend on what you negotiate. It usually boils down to the following:
- Capitalized Cost
- Residual Value
- Additional fees
It usually goes cap cost minus the residual value plus the interest and fees. You should ensure maximum benefit by making sure the number between the price and residual value is kept at a minimum.
This means looking for a car that increases its value after the lease, usually found in brands that have regular sales over many years.
The Automotive Lease Guide (ALG) is what to look at. They publish yearly statistics that acknowledge the best models that have the highest residual values. Reliability isn’t much of an issue when leasing.
You can expect that the majority of warranties in lease agreements cover the whole duration of the lease.
3. Not Computing Total Costs
You might see a car lease that is $100 a month and think “I can pay for that!”. Prices are easy to look at when it is short-term and not the long run.
Budgeting may be easy to do per month, but when talking about a lease that can be months or a couple of years, it is best to have some foresight. Comparing the total costs of leases is a simple equation:
(Number of Payments – 1) x Amount of Monthly Payment + Amount Due at Signing
So if a lease costs $100 a month for 12 months with $1500 due at signing, the equation will look like this:
(12 – 1) x 100 + 1500
The reason for subtracting one from the number of payments is that usually, the amount due at signing already includes the payment for the first month of the lease.
This little math trick allows you to compare leases that have high signing fees—also, low monthly payments to leases that have low signing fees but high monthly payments.
Ultimately, you can find out which plans are cheaper than the others in the long run. It can help save you a lot of money.
4. Not Considering Multiple Options
Choosing a model to lease can be a tough choice, especially when leasing. Once you have decided which vehicle is best suited for the lifestyle and schedule, you would be having.
You can check which dealerships actually offer the car you want. Different dealerships offer different prices for leasing specific vehicles.
Pickup trucks may have better deals in urban areas where their demand is low. A lease on a Prius may be better in a dealership in a farm town because of the same thing. Knowing the location of the dealership that offers specific models you want can help you find the right place to lease.
If the dealership is a little far from where you live, it would be best to start the negotiation through email or their website. Getting in touch with the dealership can save you a pointless long drive.
The date of when you lease can also come into play.
Leasing a car at the end of a year can mean meeting with reps that need to meet a quota. They might be more flexible with negotiations to add to their sales prior to their deadline.
In the end, it costs you less money.
5. Not Considering How Much Driving You Do
Mileage caps are one of the things that are included in a lease negotiation. This is where numbers come into play. Americans drive an average of thirteen and a half thousand miles a year.
Leases usually only allow ten to twelve thousand miles a year.
Mileage caps are put in place with the goal of setting the residual value of the car once it is leased. Residual values are one of the things that can determine the cost of a lease.
There will be a penalty per mile driven over the mileage cap.
Let’s say you meet the average of 13,500 miles after a one-year lease that has a 12,000 mileage cap, and the penalty is $0.10 per mile. At the end of the year is an additional $375 on top of the price of your lease.
If you drive only 10,000 miles for the year, that isn’t any better as well. Dealerships don’t give out awards for conservative drivers. Payment for 12,000 miles of depreciation is still in the lease agreement.
That means that you paid for 2,000 miles of depreciation that didn’t happen. This is why knowing how much you drive is vital in finding a lease agreement that fits your lifestyle.
6. Not Caring for The Car
Since you have to return the car at the end of the lease, you probably think that it doesn’t matter if you drive it like crazy, right? Wrong. You might want to take extra care or precaution when driving a leased car because it might cost you in the end.
Dealerships usually allow a little bit of wear and tear on a vehicle after a lease. Anything that they deem excessive damage will have sufficient penalties.
This may also come back to bite you in the behind if you plan to purchase the vehicle after the lease expires.
Leasing also gets rid of the possibility of being able to make improvements to the car. Upgraded wheels, a spoiler, different headlights, or tail lights all might not be a good idea.
The dealership will most probably ask you to change those back to the original, which won’t come with a cheap price tag.
7. Not Reading The Fine Print
No matter how much negotiating you do, nothing is set in stone in a lease agreement if you haven’t signed anything. People usually double-check the prices of payments in the contract since that is the crucial thing.
It is what they expect to be taken out of their account monthly. Renters don’t usually see the hidden add-ons in the fine print that takes additional dollars without them knowing.
Contracts may state services and upgrades that you can honestly forego, such as:
- Extended Warranties
- Nitrogen-filled tires
- Key Replacement Coverage
- Roof rack accessories
There are many add-ons that you can buy or do yourself if ever the need arises. These add-ons also cost much less when done elsewhere. Leases are also taxed differently depending on the area.
In some cases, tax payment is required for the entire cap cost of the vehicle. This means taxes for the amount of the car itself and not what the lease agreement asks you to pay in a specific period.
Ready to Lease a Car?
Looking for the perfect car to lease and the definitive lease agreement may take a lot of time, but it will be worth it. Once you find the ideal situation for you, you’ll realize that there are advantages to leasing instead of owning a vehicle.
If you found this article insightful, you might want to take a look at these as well. Leave a comment below if you have any questions or takeaways!