A car lease is a great way to enjoy a new vehicle without breaking the bank. Because you don’t need to make the same kind of down payment or take out a special loan to lease a car, you can drive a new vehicle without needing to stray from your budget.
A car lease can also save you time in the mechanic shop. Because most leased vehicles are new, you typically do not need to have any major repairs or maintenance done while the vehicle is under your lease. If you do need to have a repair done, the vehicle is usually still under warranty. This can save you even more out of pocket expenses.
What Does Leasing a Car Involve?
Leasing a car can be the right decision for many, but it doesn’t fit everyone’s situation. Let’s take a look at the basics of leasing a vehicle.
Your Payments Reflect the Car’s Value
With a car lease, you will pay a set amount each month. This amount is pre-determined by the value of the car. If you choose to lease a luxury vehicle, your monthly payments will be more expensive than if you leased a more budget-friendly car. You can lower your monthly expenses by choosing a cheaper car.
Higher Residual Percent Saves You Money
The expense of the car isn’t the only thing you need to consider. When choosing a vehicle to lease, you also need to consider the residual value percent, which accounts for the car’s depreciation. The higher the residual percent, the lower your monthly payments will be.
Understand your Set Miles
Your set miles tell you how many miles you can drive during your car lease. If you go above these miles, you may be subject to paying a fee based on the amount of miles over you drive. Talk with the car’s owner about this expense beforehand.
Expect a Disposition Fee
Fees can also appear at the end of your lease. When you drop off the vehicle once your lease is over, you may be asked to pay a disposition fee, typically between $300 and $500.
Understand What Money Factor Means
Your money factor is similar to your ARP. Getting a low money factor means you will save even more money on your monthly payments.
Is it Better to Lease or Buy a Car?
There are many benefits to both leasing and buying. Which one is right for you will depend on your situation and your needs. Before you decide, let’s take a look at some of the biggest benefits and drawbacks of each.
You Won’t Own the Car
Leasing your vehicle is similar to renting an apartment. While you’re paying a price each month, you don’t actually own anything at the end of the lease agreement. Instead, you’re paying for the rights to use the vehicle each month. This is important to note because once the lease is over, you will not own any part of the vehicle. Not owning the car means you cannot choose to sell it at any point and you cannot take a loan out on the vehicle under lease.
Leasing Cuts Down Up-Front Costs
Purchasing a vehicle means you need to spend a lot of cash at one time. You need to make a down payment, pay fees and taxes, and get special financing to help you pay for the vehicle. This can take a hit to your bank account and your credit score. However, leasing your vehicle does not require these same costs. Instead, you only need to pay a deposit and some fees and taxes.
No Need to Worry About Selling Car Leases
Because you don’t own the vehicle, you do not need to worry about trying to sell it when you no longer want to own it. This can save you even more money because you don’t need to worry about the car’s depreciation or the value it has lost. Instead, you simply hand it over to the original owner.
When your lease is over, you must make the final payment and return it to the dealership or owner. As you make your end payment, you may be presented with the option to purchase the vehicle for a discounted amount. However, it is important to keep in mind that your lease payments do not contribute to the cost of a new vehicle because you were not paying to own, as you would with a car loan. If you don’t choose to move forward on purchasing the vehicle, it must be returned.