What You Should Know About Leasing a Car

If you're thinking about leasing a car, it's important to understand how a lease works. Here a few helpful tips when considering a new lease. There are many details specific to automobile leases that can make what appears to be an affordable monthly payment suddenly unaffordable. Leasing is not for everyone. If you like to keep a car for many years and enjoy not having a car payment, leasing is probably not for you. However, if you don't drive a lot of miles, you like driving a recent model car, you don't want to worry about out-of-warranty repairs, you have good credit and you don't mind always having a car payment, leasing might be a great option for you.

Automobile leases began as a way for companies to deduct the expense for company vehicles rather than having to depreciate them over many years. Car leasing next expanded to luxury cars to enable consumers to drive expensive vehicles without the high cost of purchasing them. Today, you can lease just about any vehicle that is for sale.

The biggest advantage to leasing a car is a much lower monthly lease payment compared to a loan payment for the same automobile. That's because you're only paying the depreciation cost over the term of the lease, plus interest (called the "money factor"). The car you lease will have a sales price and a residual value, which is the value of the vehicle at the end of the lease. You pay the difference plus interest and fees. For example, consider a car with a sales price of $30,000; a residual value of $21,000; a required down payment of $2,999, 5 percent interest and a lease term of 36 months. Your cost is at signing is $2,999 plus tax, tag, title and dealer fees. Then you pay $9,000 plus $1,419 in interest over three years, or about $290 a month. If you purchased the car with the same down payment, interest rate and loan term, your monthly payment would be around $809.

Whether you buy or lease a car, the sales price is the same. Unless you're getting a dealer-subsidized special lease, it's perfectly acceptable to bargain for a lower starting price. However, with a lease, your credit score will significantly influence the kind of deal you get, especially the money factor. If your credit is not good, you might not qualify for a lease at all, or you might end up with a higher money factor that leads to a higher monthly payment. When you sign the lease, you typically need money for a down payment or security deposit, your first month's lease payment, tax, tag, title and dealer fees. This might amount to several thousand dollars. The down payment required is typically disclosed in large print with the lease terms, and the dealer can tell you ahead of time exactly how much money you need so there are no surprises.

After you sign the lease and take the car home, keep in mind that it's not really your car. You're renting the car for an extended period of time. The leasing company bought the car, owns the car, and keeps the title to it. Your lease agreement likely contains specific limits on what you can use the car for, how many miles you can drive each year, what you must to do maintain the car, and the condition the car must be in when you return it. For example, the lease might specify that you cannot use your car to provide ride-sharing services to others; you can only drive 10,000 miles per year; and the car must be turned in with normal wear and tear. If you drive more than the allowed mileage or have excess wear and tear on the car, be prepared to pay. If a three-year lease has a limit of 10,000 miles per year, and you turn in the car with 40,000 miles on it, you will probably owe the dealership about $1,000 for the extra mileage.

A lease also usually requires you to carry comprehensive and collision insurance on the vehicle. You will probably have to purchase Guaranteed Asset Protection (GAP) insurance, too. This insures you for any difference between an insurance settlement and the remaining money you owe on your lease if something happens to the car. For example, if the car is stolen in the middle of your lease term, you won't have a car to turn in. Your insurance settlement will provide a settlement, and gap insurance will provide anything additional if the settlement is not sufficient to satisfy your financial obligation to the leasing company. Although the dealership might try to sell you a gap insurance policy, it's usually best to purchase gap insurance from your insurance company.

If you bought a car instead, when you paid off your loan, the car would be yours forever. When you finish a lease, however, you have two options. You can usually buy the car you've been leasing for the residual value amount. Or, you can turn in the car and walk away. Presumably, you will start all over again with a new lease. Those who tend to lease cars consider this end to leasing as an advantage because they get a new car every three years or so, and the car they drive is almost always covered under the manufacturer's warranty, in case something major goes wrong. Those that buy a car tend to consider walking away from a lease with nothing to show for it to be a disadvantage because you need to come up with another down payment and sign a new lease.

Leasing is more complex than it appears at first glance. In fact, it's arguably a little more complicated than purchasing and financing a vehicle. Before you sign a lease, it's important to make sure you understand all the terms and conditions because lease agreements are very difficult to get out of once you've signed them. Make sure you're committed to the car and the lease for the full term. Whichever way you decide to go – lease or purchase, be sure to make the most of your investment by keeping it clean with regular visits to SpeedWash Car Wash. Unlimited Wash Clubs help keep you visiting regularly for a lot less than single wash purchases. Feel free to speak with any customer service attendant for details!