Questions to Ask Before you Lease a Car
If you stumbled upon this article, chances are that you're considering leasing a car. If you are new to leasing, there is much to learn and understand before you sit down to sign your lease contract. In fact, lease agreements vary quite a bit from company to company and it is very important that you are familiar with leasing terms and what they mean in order to get the best deal on a car lease.
Shop around for the best auto lease offers online and make sure you understand all the details of the lease. With any contract, be sure to read and understand all the fine print before you take the leap and sign on the dotted line. With over 200 auto dealerships from coast-to-coast, Lithia.com can help you get the right lease deal on the car of your dreams.
Let's start with a basic list of important questions you should inquire about before you lease a car:
1. Is leasing better than buying?
Leasing a vehicle can lower your monthly car payments over purchasing a car. That means you can often afford to drive a more expensive luxury car than you could have afforded otherwise. You can drive a Cadillac on a Chevrolet budget. On the negative side, most lease contracts have a cap on the mileage you drive each year. If you go over the number of miles stipulated on your lease, you will have to pay a penalty for driving extra miles.
Another thing to keep in mind is that in order to get an auto lease, you generally have to have pretty good credit. Your credit score will have to be over 620 in order to be accepted for most auto leases. However, you can get a lease with a lower credit score but that will likely mean you'll pay a higher interest rate or make a larger down payment.
2. What does it mean to lease a car?
Buying a car is like buying a house. You finance a loan, make a monthly payment, and at the end, the house (or car) is all yours. Leasing a car is more like renting, lease is a long-term rental agreement. If you like the idea of always driving a new car that you trade in for another new car every three years, then a lease might be a good idea for you. But like renting, you'll never own the car.
Pros for leasing a car include always having the latest technology and never having to worry about maintenance or repair bills.
Cons include the fact that you will never own the car and if you are hard on your vehicles, leasing may not be for you. Because at the end of the lease you'll be expected to return the car in excellent condition. No scrapes and no dings.
3. What car leasing jargon will be in the contract?
You may already know some of these terms, but others may be new to you. For instance, MSRP stands for Manufacturer's Suggested Retail Price. That's the price set by the automaker and it is posted in a new car's window. Obviously, there can be additional charges for options but the MSRP is the base price for the car.
Capitalized cost: is the total cost of the vehicle that you'll be making lease payments on. It is important to negotiate the lowest capitalized cost possible because a lower capitalized cost will result in lower monthly payments.
The money factor or lease factor: is the financing charge you will pay on the lease. It is similar to the interest rate you pay on a loan and it's based on your credit score. Multiplying the money factor by 2,400 will give you the equivalent annual percentage rate of the lease (APR).
Residual value: is the value of the vehicle at the end of the lease after depreciation. A realistic residual value makes it easier to negotiate selling, trading or buying the car at the end of the lease. You'll want to look up the lease rating of the car because some cars depreciate quicker than others. Your lease payment will cost you more on a car that depreciates quickly. You can find out more at Lease Compare.com.
4. What is a closed-end lease?
In a closed-end lease, if the car ends up being worth less at the end of the lease than the leasing company estimated when you signed, the company absorbs the difference in cost. The important part is that they pay for the difference, not you. Read the fine print on your loan contract and only sign a lease agreement that is a closed-end lease.
5. How much money is due up front?
When you see a special lease deal that boasts really low monthly payments, chances are you’ll have higher fees to pay when you sign the lease agreement. Drive-off fees are out of pocket costs that are a combination of various fees and the down payment. The bigger your down payment, the lower your monthly payment, just like a traditional loan. Ideally, you’ll want to pay as little as possible up front.
You can actually ask that some fees be reduced or removed from lease contracts. For instance, you can often get the dealer to waive the security deposit fee. Fee amounts differ from brand to brand and from bank to bank. Make sure you understand each of the fees in the contract before you sign.
6. What are mileage caps?
Lease contracts include an annual mileage limit because a car’s mileage affects its resale value. The mileage cap is usually 10,000 to 15,000 miles per year. Be sure to ask about the mileage cap as well as the cost-per-mile penalty for exceeding the annual limit. If you feel that the mileage cap is too low, you can usually negotiate a higher limit, but doing so will increase the cost of the lease.
7. What is the warranty duration?
When going over the lease documents, make sure the manufacturer’s warranty covers the entire lease term as well as the number of miles you are likely to drive. If you lease the vehicle for the length of the manufacturer’s warranty, you’ll never have to pay for major repairs to the car.
8. What are the “wear and tear” charges?
Check with your dealer to make sure you understand the extent of wear and tear charges in your lease. You want to be sure to know what is considered normal wear and tear and what you might be responsible for, from stains on the upholstery to dings in the door.
9. What maintenance are you responsible for?
You’ll want to know what maintenance expenses you will be responsible for. Generally speaking, you are responsible for the costs of maintaining the vehicle just as if you owned it. That means that you will be paying for oil changes and tires at the very least. You are also responsible for all taxes and licensing fees in your state as well as car insurance.
10. What about premature termination?
Make sure you understand what happens if you have to get out of the lease early. Usually terminating a lease before it is up can be very costly and can even damage your credit. Make sure you know the costs, just in case.
11. What payments are due at the end of the lease?
Make sure to go over all the fees that can occur at the end of the auto lease with your dealer. These can be fees for excess mileage as mentioned earlier, or for damage to the vehicle. It is better to know what all the fees might be before you sign.
Don’t forget to check your contract to see what happens to your lease deposit at the conclusion of the lease. This security deposit is generally refundable if the vehicle is returned in excellent shape and if you have met all the contract specifications. This is different from a nonrefundable down payment.
Remember that the best way to negotiate a car lease is to be armed with knowledge. The more you know about the process, the more likely you are to get a great deal. As you get answers to the questions posed here by going over the lease with your Lithia Auto Dealer, you'll have a clear understanding of ways to save money and have a worry-free driving experience for years to come.
