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How To Lease Your Next Car

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On: Wed, Sep 21, 2011 at 3:21PM | By: Peter C Sessler

How To Lease Your Next Car

Leasing has become more popular over the last decade for several reasons. Car prices have climbed and, so, for many people, leasing, with its lower monthly payment is a viable alternative. This is particularly the only alternative for those who are interested in high-line and other expensive vehicles costing $30,000 and more. Few people have $15 or $20,000 lying around to put down on a car in order to have a manageable payment.

There are plenty of good reasons why leasing is better (for some): you’re paying for only the portion of the vehicle’s useful life that you actually use, it frees up your money (if you have any) for other uses, and so forth. However, there are some major negatives too. First, leases are structured with yearly mileage limitations, ranging from 10-15,000 miles. This is not enough for many people and leasing a car with more allowable miles can make leasing uneconomical. Second, leasing still requires excellent credit, and too many people in this country now have blemished credit histories. So, even if someone can afford a $200 a month lease payment, that someone won’t be able to get approved. Third, you better be sure you like the car you’re leasing because leases can cost you dearly if you want to get out early.

Leasing is complicated, and we won’t go into the mechanics of how a lease is calculated, but over the years regulations have been put in place to protect the consumer. It used to be that someone who leased a car never knew what the actual selling price of the car was or what price the lease was based on. Was it a full list price or was it less? Now lease contracts must state what the selling price is; this makes it possible for you to negotiate the price down.

With a lease, the lease company owns the car, but you have to insure it, and maintain it as though it is your own. If your insurance lapses for some reason, the lease company will cover it but at an exorbitant rate. You have to follow the manufacturer’s maintenance schedule and you have to return in good condition. The ideal lease is one that expires at about the same time the manufacturer’s warranty runs outs—that way, you won’t be liable for any major repairs should they be needed. It’s no fun having to replace a transmission out of your pocket and then two months later having to return the car to the lease company. For that reason, you’ll find that most leases are advertised with 2- to 3-year terms. If you do decide to go for a longer term lease, then you should consider an extended warranty.

It is possible to put money down on a lease (in effect, paying a portion of each lease payment up-front) in order to reduce the monthly payment. Be aware, however, that some lease companies will not allow you to put more than 20% of the vehicle’s selling price down.

Security Deposit
Most leases require a security deposit that will be returned to you at the end of the lease term—at least in theory. Sometimes the security deposit is waived, and sometimes your payment can go down further if you put down multiple deposits.

Early Termination
This is one of the major downsides with leasing. If you feel you don’t like the car after a few months driving—no problem—just break the lease. The only problem is you’ll be asked for the outstanding lease payments, plus the residual value (the value the car is supposed to be worth at the end of the lease term—it’s stated on the lease contract, but this can be offset by what the car’s wholesale value is, and you know that’s going to be a lot less than what you leased it for. There are variations to this formula, but in every case, they are not going to allow you to walk away from it scot-free. The longer you’re into the lease, the less it will cost you to terminate early.

Lease Termination
When the lease if finally up, you have to return the car to the dealer you got it from or wherever the lease company instructs you to. There are certain things to keep in mind. If you have gone over the agreed miles, you’ll be charged 10 to 15 cents per mile—it varies from one company to another. The car has to be free from defects that go beyond normal wear and tear. That means no dents, deep scratches, broken glass, burns in the carpet, etc. And the tires have to pass inspection. All of these stipulations are normally spelled out in the lease agreement. If the car has damage, you’ll have to pay for it—which is one of the reasons for the security deposit.

Lease Disposition Fee
Most lease agreements these days include a Disposition Fee. This is a fee they’ll charge you to “dispose” of the car when you turn it back after the lease is over. Coincidentally, most of the time it is a figure very close to what your security deposit is. In my opinion, it’s just a way for them to keep your security deposit.


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