8 Things to Know Before Leasing a Car

Should I lease? What is leasing anyway? Here’s what you need to know.

1. Leasing Is Paying For What You Use

Let’s imagine that a particular car costs $30,000 new and that it has an estimated value of $21,000 after three years of use. The amount of depreciation incurred is $9,000. Divide this amount by the number of months in the lease (in this case, 36 months) and you get your monthly lease payment: $250.

Now, there are also finance charges and taxes to include, but in essence, leasing is paying for the depreciation that occurs over time from your use of the vehicle. At the end of the lease, simply return the car or buy it outright by paying the remaining value of the car (in this example, $21,000).

2. Some Cars Lease Better Than Others

Cars of the same price and type can cost vastly different amounts of money to lease.

These variations mostly boil down to the details of each manufacturer’s lease program. Every month, automakers release new lease programs that establish the following:

  • Residual value: The car’s estimated value at the end of the lease.
  • Money factor: The interest rate expressed in a different way.
  • Cash incentives: If available, these lower the final selling price of the car.

3. Leases Can Be Negotiated

Advertised “lease specials” create the impression that lease prices are set by the manufacturer—as if they were promotional menu items from McDonald’s.

In truth, individual dealers determine the selling price of a car, who then apply the manufacturer’s lease program to arrive at the actual cost. A manufacturer’s lease special simply assumes a particular selling price that they expect dealers to honor. The selling price can most certainly be negotiated.

4. Watch Out For Marked Up Rates and Fees

Aside from setting the sales price, dealers can also mark up the money factor. This may result in hundreds or thousands of extra dollars paid over the course of a lease. Leasehackr.com posts the official money factor for hundreds of vehicles, so you can check if you’re being charged too much.

With a lease, you’ll also pay an acquisition fee and often a disposition fee. These are legit fees, but some dealers mark them up as well. In exchange for paying these fees, you benefit from certain inherent advantages of leasing—explained below.

5. Someone Else Takes On The Risk Of Depreciation

When an automaker sets the residual value of a particular model, they often overestimate the car’s actual lease-end value.

For example, Leasehackr leased a 2013 Mercedes-Benz E350 BlueTEC, which had a residual value of $44,036 after two years of use. In actuality, the car was worth about $34,000 on the open market when it came time to return the car.

By leasing, Leasehackr avoided $10,000 in depreciation that we would have otherwise incurred if purchased instead. This amounts to over $400 per month saved!

Some automakers are spot-on with their estimates. Others intentionally inflate their residual values to make their leases cheaper. And sometimes they just get it wrong. Regardless, when you lease, someone else takes on the risk and uncertainty of depreciation.

6. You Can Cash Out On Any Lease Equity You Have

Sometimes, the opposite scenario happens: your car is worth more at lease-end than its official residual value. This might occur if your car becomes highly desirable in the used car market.

With many automakers, you can actually arrange a third-party, such as CarMax or Beepi, to buy out the car. If CarMax offers you, say, $23,000 for the car, but the residual value is $21,000, then they will write you a check for the difference ($2,000).

7. You Only Pay Sales Tax On The Cost Of The Lease

When you purchase a car, you pay an amount of sales tax based on the selling price of the car. This can amount to thousands of dollars that you never get back, even if you end up selling the car a few years later.

In most states you pay sales tax only on the cost of the lease. These tax savings more than make up for the acquisition fee required on a lease.

8. Never Put A Down Payment On A Lease

If your car is ever totaled or stolen, you can always walk away from a lease without penalty (thanks to GAP insurance). However, you won’t always get your down payment back— so don’t pay one to begin with.

A down payment obscures the cost of the lease and makes it more difficult to compare deals. Any car can be leased for $199 per month if there’s a sufficient down payment.

Article Source: https://leasehackr.com/blog/2015/9/19/8-things-you-should-know-before-leasing-a-new-car


The Pros and Cons of Buying Out Your Car Lease

If you leased your car and really enjoy driving it, it’s tempting to consider buying it when the lease ends. Keeping your car has advantages and disadvantages you should consider before you sign on the dotted line.

Advantages of Buying Your Leased Car

There are a few reasons to buy your car:

  • Unlike another used car, you know this vehicle’s history. You are the only one who has owned it, so you are aware of past accidents and maintenance.
  • After you’ve paid off your car, you’ll own the vehicle.

Disadvantages of Buying Your Leased Car

A few reasons this might not be the best choice for you:

  • You have limited room to negotiate on the price of the vehicle and may not get as good a deal as you would on another used car.

Deciding If You Should Buy Out Your Lease

Like any major financial decision, it’s important to think carefully about buying your leased vehicle. Follow this process to help you make the choice that’s right for you.

1. Find the Residual Value in Your Lease Agreement

When you lease a car, you are paying the car company for the predicted depreciation of that vehicle. Your monthly lease payment includes this depreciation and a fee that goes to the leasing company and covers administrative costs. At the end of your lease, you will have paid the car down to its “residual value.” This residual value is the car company’s prediction about what the car will be worth at the end of your lease term, and it’s usually the starting point for price negotiations when you buy out your lease.

According to Bankrate, car companies are generally accurate when predicting residual value. However, knowing this residual value is an essential part of deciding whether to buy out your lease. Look for the residual value in your original lease contract.

2. Learn the Market Value of Your Car

Now that you know the residual value, you need to compare that figure to your car’s market value. There are several sites that can help you find used car values. Simply input your car’s make, model, and year and provide additional information about mileage and condition. Be sure to specify that you want the market value, rather than a trade-in estimate. It’s a good idea to get value estimates from multiple sources so you have an accurate idea of how much your car is worth.

3. Compare the Market and Residual Values

If the car company was correct in its prediction, your car’s residual value will be very close to its market value. However, there’s sometimes a significant difference in these two numbers. This comparison can help you decide whether to buy your car.

  • If the residual value and market value are fairly similar, you’ll need to take other factors into account when making your decision.

4. Take Other Factors into Consideration

Now that you have a pretty good idea of the financial situation regarding your lease buyout, you’ll need to consider a few more things:

  • Think about the condition of your vehicle. Have you maintained it regularly? Has it been in any accidents? If it isn’t in great condition, you may be better off shopping around.
  • Think about mileage. Have you gone over the mileage limits in your lease? If you have, this may reduce the market value of your car without changing the residual value. In addition, you’ll need to pay the fees specified in your lease for going over the mileage limits.
  • Figure out the average annual cost to own your car. This figure will change as the car ages, and if you’re comparing a lease buyout with a new lease, it will be important information for you to consider.

5. Do the Math

Finally, sit down with a car payment calculator and figure out exactly how much you’ll need to pay each month if you buyout your lease. Talk to your local credit union to see if they can help you find the best interest rate on a car loan or lease buyout loan. Think about the purchase option fee, the residual value, your down payment, and your interest rate. Compare this figure to leasing a new car or buying a different used vehicle.

Examples to Consider:

Each situation is unique, and it’s important to go through the process of making this important decision for yourself. However, it can help to consider examples of situations where a lease buyout is clearly a good idea or a bad idea.

Highly Desirable Car

Some cars are especially in demand due to factors the car company didn’t predict. For instance, if gas prices go up and your car is extremely fuel efficient, it may be worth more money as a used vehicle. This means the market value for your car will be extra high compared to the residual value, and buying out this lease is a good idea.

Vehicle With Low Miles


Car Prone to Break-Downs

Generally, your car will be under warranty during the lease period, which means that if it breaks down, you don’t have to pay for major repairs. However, once the lease period ends, your factory warranty may too. If the car has been breaking down while it’s still fairly new, it’s likely to cost you a great deal of money in future repairs. Even if the residual value is lower than the market value, buying this car is probably a bad choice.

Make the Best Choice for Your Situation

Deciding whether you should buyout your car lease involves doing your research and carefully examining your lease contract. If you give appropriate thought to this decision, do the math, and take emotional factors into account, you’ll make a choice that is financially and practically best for your unique situation.

Article Source: Kate Miller-Wilson for cars.lovetoknow.com

The Pros and Cons of Leasing a Vehicle

Have you ever thought about leasing your next car? If the thought has crossed your mind, here are a few pros and cons of leasing a car.

Pro: Lower monthly payments
Generally, lease payments are lower than car payments and if you’re used to having a payment, this probably sounds great to you.

Con: No equity
When you sign a lease, you’ll have to make payments over a defined period of time. When that time is up, the car goes back to the dealer. At this point, you’ll have a decision to make. You can either enter into a new lease or you’ll have to buy the car.

Pro: Repairs are usually covered
Since you’ll only have a leased car for a handful of years, it will more than likely be covered by a factory warranty. This will save you from having to shell out big bucks for repairs while you have the car.

Con: Mileage limit
How many miles do you drive each year? If you drive over 10-12k miles a year, you’ll probably face some sort of penalty fee at the end of your lease term. Be mindful of this, because those extra miles can really add up.

Pro: A new car every few years
If you’re serial leaser, you probably love driving a new car. This is a definite advantage of leasing over buying. Buying and selling cars can be a hassle, so if you love driving new cars, leasing can be a great option for you.

Con: Fees for damages
When you turn in your car at the end of your lease term, the dealership is going to want to sell it. If there are any dents or scratches to be repaired, you may want to get them taken care of before you turn in the car. A little ding in the door isn’t a big deal if it’s your car, but with a lease, you’ll probably have to pay a fee to get it repaired.

Leasing isn’t for everyone. There are definitely advantages and disadvantages to leasing vehicles. Do your homework and decide what is the best option for you.

Have you leased a vehicle and you’ve gone over your miles or excessive wear and tear? First Financial can help you buy out your lease and help you save! With our Lease Buy Out Program, you aren’t stuck with a big lump sum payment. We’ll help you keep that car you love.* Get started today.

*Not all applicants will qualify, subject to credit approval. Not all applicants will yield savings examples advertised. Additional terms & conditions may apply. Actual rate may vary based on credit worthiness and term. See credit union for details.  A First Financial membership is required to obtain an auto loan and is open to anyone who lives, works, worships, volunteers, or attends school in Monmouth or Ocean Counties NJ. A $5 deposit in a base savings account is required for credit union membership prior to opening any other account/loan. Federally insured by NCUA.

Article Source: John Pettit for CUInsight.com