Most people are familiar with buying a car. You make a down payment, agree to the monthly payments, and at the end of paying the car off, you own it as yours. Leasing works much differently than buying a car. When you lease, you don’t make a down payment. You simply pay your first month’s payment. You don’t own the car at the end of the lease. You just have the luxury of driving a much better car during the duration of the lease.

People with less income but who still demand the best vehicle they can afford will get a lot out of leasing a car. Even though they can’t afford to buy a car, they can still afford to lease an expensive car and get the benefit of driving that car while it’s still under manufacturer’s warranty. This is a terrific idea for people who don’t want to commit to buying an expensive car.

What Does Leasing a Car in Involve?

There are a few important keywords you need to know before you lease a car. These important words help determine what your monthly payment is going to be. Before leasing, make sure you understand these very important facts of leasing.

Your Payments Reflect the Car’s Value.

The car’s value will be a huge factor in determining how much you lease a car for per month. Expensive cars are going to have more expensive monthly lease payments. Make sure you have thought through your expected budget during the period of leasing. If you know your income well and know how much you can afford to put toward a car, figure out if you can go lower than that number. If you can, you can save some bucks.

Higher Residual Percent Saves You Money.

Residual value percent is a huge term that you need to be familiar with before leasing. Put simply, it’s the amount the car will be worth at the end of its lease. This number is important in determining what your monthly payments will be as well. The higher the residual value, the more money you save during the lease period.

Understand Your Set Miles.

A lot of folks aren’t aware that they can’t drive a leased car all they want. There is a set miles factor that can result in fees if you’re not aware of this. You are allowed to drive the car a certain amount of miles during the period of lease. If you go over this, you can be looking at hefty fees for it. Even a single mile over can result in a fee.

Expect a Disposition Fee.

The disposition fee is important as well. After you’ve leased a car, the dealership must clean up that car and then re-sell it at the end of your lease. They charge between $300 and $500 at the end of your lease for this fact. Be prepared to pay this when the lease is up.

Understand What Money Factor Means.

Things get a little complicated here, but just be aware that the APR and money factor are the same thing. It’s the finance rate for the lease. Knowing your Money Factor means knowing how much interest you are going to pay over the course of the lease. The more you pay per month for the lease, the more you interest is going to be. Keep this in mind before leasing.

Is it Better to Lease or Buy a Car?

If you’re reading this right now, chances are you’ve decided that buying a new car might not be a possibility right now. You still want a great car, though. Leasing is a good option under certain circumstances. As long as you understand the terms of the lease, the financing rate, and the monthly payments, you’re going to have a great start. There are a few other things to keep in mind, though.

You Won’t Own the Car

At the end of the lease, you’re not going to own your car. You must either return it or negotiate terms for buying the car.

Leasing Cuts Down Up-Front Costs

You’re going to be able to lease a car for much less up front than buying a car. You pay first monthly payment, deposit, and then fees and taxes.

No Need to Worry About Selling Car Leases

At the end of the lease, you don’t have to worry about selling the car or what happens to it after. You return it and pay the disposition fee and have then completed the terms of your lease. Mission accomplished.

End Payments

The final payment frees you from any further payments and then you can either work on the terms for buying your leased car or you can wash your hands of it completely and look for another car to lease or buy.

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