A lease is a contract or agreement in which one party conveys the use of something like a building, service, land, or a car, to another party for a specific span of time in exchange for money. In the case of a car lease, the object that is conveyed is a vehicle. If you are to ask what is the main difference between financing and leasing a car, it is the ownership. When you are financing a vehicle, you are purchasing it to acquire ownership. However, in a car lease, you usually don’t own the vehicle. Unless the contract stated that you could buy it at the end of the period, you must return the car to the lessor.
What are the pros and cons of leasing a car?
Those who prefer to lease instead of buying a car most often tend to do so for some reason. The first is that they get to drive a new vehicle that is under warranty throughout the lease period. Therefore, these cars under the lease rarely require any maintenance. The second reason might be the payment. Usually, in a car lease, the monthly payments are smaller than when you are to purchase your own car. This is because the payments of the lease are based on the depreciation of the vehicle over the course of the lease period rather than on the vehicle’s full value. With that, drivers can lease a car that is more expensive than the one they could actually afford to purchase.
Meanwhile, one of the disadvantages of leasing a car is that over the course of the lessee’s lifetime, they most likely end up spending more on their vehicle. In addition to that, at the end of the lease period, the lessee should return the car without any equity in the vehicle.
What to Consider When Leasing a Car?
Before leasing a car, there are various questions you should ask the dealers first in order to secure the best available leasing term there is. Through understanding the car leasing fundamentals, together with the several options at your own disposal, you can negotiate the right deal for you. Below are some of the key items you need to consider when negotiating a deal to save you money over the lease’s lifetime.
1. What items in the lease are negotiable?
In general, car dealers usually negotiate over vehicle pricing. Dealers work as agents in a leasing institution typically establish essentials like security deposits, down payments, and acquisition fees. For this reason, it is probably much wiser to inquire what are the negotiable items in the lease contract, as well as the items that are set in stone. By knowing such information, you can now proceed to a favorable arrangement.
2. What is the Manufacturer’s Suggested Retail Price (MSRP) and Capitalized Cost (Cap Cost)?
MSRP is the full price of the new vehicle. It is also known as the sticker price. This is the price you could negotiate since it is only the suggested price. However, there is an exception if the specific model is in high demand. On the other hand, the lease price, also known as the Cap Cost, is the base price that you can negotiate down to from the MSRP. One thing to note before leasing a car is to know that the Cap Cost is always negotiable.
3. What is the Residual Value and Depreciation?
The residual value is the wholesale value of the car at the end of the lease term. The lessors usually estimate the residual value during the time that the lease is written based on historical resale data. Furthermore, depreciation is the decrease of the car’s value during the lease period. Typically, the depreciation value is the biggest part of the monthly payment amount of the lease.
4. Of Mileage Charges and Allowance
Aside from those mentioned above, another thing to consider is the maximum number of mileage that the lessee can drive the car per year. This is also known as the mileage allowance. The mileage allowance for a driver lease usually ranges from 10,000 to 15 000 miles per year. If the miles exceed more than the standard mileage allowance, they’ll be charging an additional fee per mile.
5. Are there any Additional Charges?
Additional charges include default payments, disposal fees, early termination fees, and wear-and-tear charges. Default payments are for the late payments, while the early termination fee is for ending the contract on the agreed period. Disposal fees are paid if the lessee decided not to buy the vehicle at the end of the lease. As well as that, there is also the wear-and-tear charge to cover the wear and tear on the leased car that goes beyond the considered reasonable and normal damage.