vehicle leasing
"To Lease or Not to
Lease" THAT is the question.
Thinking of leasing? Shop like you are going to buy.
Negotiate all the lease terms, lowering the lease price will help reduce your
monthly payments.
GET ALL the terms in writing!
'TERMS YOU NEED TO KNOW'
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In a closed-end lease, you return the car at the end of the lease and "walk away." But you are still usually responsible for some end-of-lease charges like excess mileage and/or wear and tear. |
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In an open-end lease, you pay the difference between the value stated in your contract and the lessor's appraised value at the end of the lease. |
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Lease inception fees are payments you must make when the lease starts (see Up-front costs) Ask for a list - you may be able to negotiate some of these terms. |
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The capitalized cost is the price of the car for leasing plus taxes and extra charges like service contracts and registration fees. |
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The capitalized cost reduction is similar to a down payment. If you're trading in a car, make sure the dealer applies the trade-in value to the price your lease is based on. The trade-in credit may reduce your down payment or monthly payments. |
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Consider "gap insurance'. |
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BEFORE you sign the deal - take a copy of the contract home and review it carefully away from dealer pressure. Be alert for any charges that were not disclosed at the dealership, like conveyance, disposition, and preparation fees. (see other fees) |
'more things to know'
Ownership
| Leasing: You do not own the vehicle. You get to use it but must return it at the end of the lease unless you choose to buy it. | Buying: You own the vehicle and get to keep it at the end of the financing term. |
| Leasing: Up-front costs may include the first month's payment, a refundable security deposit, a capitalized cost reduction (like a down payment), taxes, registration and other fees, and other charges. | Buying: Up-front costs include the cash price or a down payment, taxes, registration and other fees, and other charges. |
monthly payments
| Leasing: Monthly lease payments are usually lower than monthly loan payments because you are paying only for the vehicle's depreciation during the lease term, plus rent charges (like interest), taxes, and fees | Buying: Monthly loan payments are usually higher than monthly lease payments because you are paying for the entire purchase price of the vehicle, plus interest and other finance charges, taxes and fees. |
EARLY TERMINATION
| Leasing: You are responsible for any early termination charges if you end the lease early. | Buying: You are responsible for any pay-off amount if you end the loan early. |
VEHICLE RETURN
| Leasing: You may return the vehicle at lease-end, pay any end-of-lease costs, and "walk away." | Buying:
You may have to sell or trade the vehicle when you decide you want a different vehicle. |
FUTURE VALUE
| Leasing: The lessor has the risk of the future market value of the vehicle. | Buying: You have the risk of the vehicle's market value when you trade or sell it. |
| Leasing: Most leases limit the number of miles you may drive (often 12,000-15,000 per year). You can negotiate a higher mileage limit and pay a higher monthly payment. You will likely have to pay charges for exceeding those limits if you return the vehicle. | Buying: You may drive as many miles as you want, but higher mileage will lower the vehicle's trade-in or resale value. |
| Leasing: Most leases limit wear to the vehicle during the lease term. You will likely have to pay extra charges for exceeding those limits if you return the vehicle. | Buying: There are no limits or charges for excessive wear to the vehicle, but excessive wear will lower the vehicle's trade-in or resale value. |
END OF TERM
| Leasing: At the end of the lease (typically 2-4 years), you may have a new payment either to finance the purchase of the existing vehicle or to lease another vehicle. | Buying: At the end of the loan term (typically 4-6 years), you have no further loan payments. |
CONSIDER BEGINNING, MIDDLE, AND END-OF-LEASE COSTS
At the beginning of the lease, you may have to pay your first monthly payment; a refundable security deposit or your last monthly payment; 'other fees' for licenses, registration, and title; a capitalized cost reduction (like a down payment); an acquisition fee (also called a processing or assignment fee); freight or destination charges; and state or local taxes.
During the lease, you will have to pay your monthly payment; any additional taxes not included in the payment such as sales, use, and personal property taxes; insurance premiums; ongoing maintenance costs (make sure the manufacturer's warranty covers the entire lease term); and any fees for late payment. You'll also have to pay for safety and emissions inspections and any traffic tickets. If you end your lease early, you may have to pay substantial early termination charges.
At the end of the lease, if you don't buy the vehicle, you may have to pay a disposition fee and charges for excess miles and excessive wear.
YOU CAN COMPARE DIFFERENT LEASE OFFERS AND NEGOTIATE SOME TERMS. CONSIDER . . .
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The agreed-upon value of the vehicle--a lower value can reduce your monthly payment |
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Up-front payments, including the capitalized cost reduction |
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The length of the lease |
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The monthly lease payment |
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Any end-of-lease fees and charges |
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The mileage allowed and per-mile charges for excess miles |
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The option to purchase either at lease-end or earlier |
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Whether your lease includes "gap" coverage, which protects you. It covers the difference - sometimes thousands of dollars - between what you owe on the lease and what the car is worth if the vehicle is stolen or totaled in an accident. |
Ask for alternatives to advertised specials and other lease offerings.
KNOW YOUR RIGHTS AND RESPONSIBILITIES
When you lease a vehicle, you have the right to
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Use if for an agreed-upon number of months and miles |
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Turn it in at lease-end, pay any end-of-lease fees and charges, and "walk away" |
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Buy the vehicle if you have a purchase option |
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Take advantage of any warranties, recalls, or other services that apply to the vehicle. |
PURCHASING A USED CAR ?
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Check out the car's repair record, maintenance costs, and safety and mileage ratings in consumer magazines or online. Look up the "blue book" value, and be prepared to negotiate the price. |
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Buying from a dealer? Look for the Buyers Guide. It's required by a federal regulation called the Used Car Rule. |
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Make sure all oral promises are written into the Buyers Guide. |
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You have the right to see a copy of the dealer's warranty before you buy. |
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Warranties are included in the price of the product; service contracts cost extra and are sold separately. |
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Ask for the car's maintenance record from the owner, dealer, or repair shop. |
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Test drive the car on hills, highways, and in stop-and-go traffic. |
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Have the car inspected by a mechanic you hire. |
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Check out the dealer with local consumer protection officials. |
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If you buy a car "as is," you'll have to pay for anything that goes wrong after the sale. |
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The Used Car Rule generally doesn't apply to private sales. |