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304 North Cardinal St.
Dorchester Center, MA 02124
For those considering a lease for the first time, it can be confusing to understand all of the elements that make up a lease and still feel confident that they are getting a great deal.
At Cartelligent we help thousands of clients each year choose the best financing options for their personal circumstances. This guide is intended to help clarify the decision to buy or lease.
As a general rule, purchasing is preferred by consumers who want to keep the same car for a significant number of years. In contrast, leasing is intended for consumers who would rather drive a newer car or would like a lower monthly payment than they can get by financing.
While most car buyers have a basic understanding of the concept of purchasing and financing a vehicle, leasing is almost intentionally confusing. Consumers who are new to leasing will often focus on their monthly payment or the selling price of the vehicle. This can make it easy to miss other factors that affect their total cost such as the upfront costs of the lease, the interest rate being paid and any unapplied rebates and other incentives.
In addition, leasing comes with its own jargon and obfuscations. We’ve defined some of the more common terms below:
Capitalized (Cap) Cost: The negotiated price for the vehicle
Residual Value: The amount the vehicle will be worth at the end of the lease term
Money Factor: The interest rate of the lease (this can be converted to the more familiar APR by multiplying it by 2400)
Cap Cost Reduction: Any payment made upfront to reduce the monthly payments (the equivalent of a down payment)
Acquisition Fee (or Bank Fee): A fee charged by the financial institution underwriting the lease which is included on all leases.
So, who should think about leasing? Well, if you love having a new car every few years and don’t drive a ton, leasing might be perfect for you. It’s also great if you want to avoid the hassle of selling a car later. Just remember, you’re paying for the convenience of a new ride without the long-term commitment of ownership. If that sounds like you, leasing could be the way to go.
Leasing is similar in theory to renting an apartment. As the person leasing the car, or the lessee, you are paying some initial fees along with monthly payments to use the car, but you don’t actually own it. Every lease agreement has terms and conditions you must adhere to and at the end of the agreed-upon term, you return the car to the leasing company. This type of arrangement has several benefits that could make leasing a much better deal for you.
1. Lower monthly payments
One of the greatest advantages of leasing a car is typically lower monthly payments than if you were obtaining financing to purchase the car.
When you finance a vehicle purchase, you pay the entire purchase price of a vehicle over the life of the financing plus interest. But lease payments are calculated a little differently.
Instead of paying for the entire value of the car, your monthly payments cover the vehicle’s depreciation (plus rent and taxes) over the lease term. Since you’re only financing the depreciation instead of the purchase price, your payment will usually be much lower.
These savings can help you either upgrade to a newer, more desirable model for your budget or save money each month on a less expensive car payment.
2. Less cash required at drive off
Down payments for a vehicle purchase can run up to 20%, but a lease often requires little to nothing for a down payment. You’ll typically have to pay the first month’s payment, taxes, title and registration fees, and perhaps an acquisition fee or other fees when you sign the lease, but the cost is usually less than the cash you’d need to put down on a car for purchase financing.
3. Lower repair costs
Because lease terms are so short, most repairs will be covered by the manufacturer’s bumper-to-bumper warranty. In some cases, the manufacturer will cover maintenance costs. When reviewing your lease agreement and warranty or maintenance agreements, be sure to understand what repairs and maintenance are covered to avoid unexpected vehicle service bills.
4. You don’t have to worry about reselling it
For closed-end leases, once your lease is over, you just return it and move on to your next car. There’s no hassle trying to resell it, and the value of the car at the end of the lease is the leasing company’s responsibility, not yours. You may still be liable for additional amounts at the end of the lease term, including excess wear and use and excess mileage.
5. You can get a new car every few years hassle-free
Car leases usually last between 24 and 48 months. Because lease terms are relatively short, you can drive a new car with the latest technology and safety standards without the commitment or hassle of trying to purchase or sell your current one when it’s time to upgrade.
Once your lease ends, you simply return it to the dealership, choose your next vehicle, and sign a new lease.
6. More vehicles to choose from
Many people have their eye on a dream car but may have a hard time qualifying for financing to purchase.
Leasing a car, however, opens the door to more expensive models and trim packages since it typically comes with a lower monthly payment for the same vehicle. This gives you more flexibility with your vehicle options so you can choose the one that best fits your lifestyle.
7. You may have the option to buy the car at the end of the lease
Leases often include an option to purchase at a predetermined price. You may choose to execute this option if you love your car or the purchase price is less than its value. On the other hand, you can walk away if the purchase price is more than the vehicle is worth.
While that may leave you regretting not buying it from the beginning, it gives you a chance to “test drive” the vehicle for a few years before committing to it long term.
Car leasing offers a viable alternative to buying a car outright or on finance. It’s an attractive option if you enjoy driving the latest models, appreciate fixed-cost motoring, and prefer not to worry about vehicle depreciation or selling the car when you’re done with it.
Whether you’re considering a no deposit car lease, interested in our Fuel & Go package, or have questions you’re afraid to ask, we’re here to help. Feel free to contact us for more information or to start your car leasing journey.