Leasing a vehicle is considerably different than buying a car. Leasing involves renting a car for a specific period of time. The monthly lease payment is based on how much a car will devalue over the course of the lease. Leasing a vehicle allows many people to obtain a car without needing a large down payment. In addition, lease payments tend to be lower than regular car payments since the financed portion of the loan represents the difference in depreciation value of the vehicle.
Leases are appropriate for people who like to drive a new car every few years. The term "lease" refers to renting a vehicle for a specific period of time and returning it once the lease term ends. The typical hassles of trading in a vehicle or haggling for a price on a new car are avoided. Leases allow consumers to drive more vehicle for less money. The best leased vehicles are those that hold their value. These vehicles are in high demand and can be readily sold when the lease terminates. It is also possible to purchase your leased vehicle at the end of the lease. Leased vehicle purchase involves renegotiating the purchase price and paying taxes on the adjusted value of the vehicle.
The sticker price of any vehicle is negotiable, including the price of leased vehicles. Consumers should work to lower the total price of the car since this translates into a lower lease payment. This negotiated amount is called capitalized cost. This value is what will be used to figure the lease payments. Any dealer incentives or rebates should be deducted from the capitalized cost, not the sticker price--manufacturer's suggested retail price--to benefit the consumer. Leases are based on the vehicles potential value at the end of the lease. This value, called the residual value, is a general estimation of the worth of the vehicle in the future. The best lease deals are for those cars that will have a high residual value at the end of the lease. Unlike an outright car purchase, leases are financed through a leasing company.
Every leased vehicle payment includes sales tax, a depreciation fee and finance fee. Sales tax is typically figured on the monthly lease payment at the local sales tax rate, not the full value of the vehicle although this may differ by state. The depreciation fee refers to the amount you pay each month for the actual devaluing of the vehicle. In addition, the leasing company charges a fee for the use of their money, as well as interest. It's usually not in the consumer's best interest to make a down payment on a lease. The down payment may lower the overall vehicle cost, but you'll never get the money back at the end of the lease. Instead, it's best to keep your down payment money to apply to your regular leasing payments. State and local taxes may also be charged for any down payments on your leased vehicle. The first leased vehicle payment is made at the time of purchase. Security deposits and bank fees are typically charged and you will pay regular license, registration and title fees for the vehicle at the time of lease signing.
Leases allow for a limited amount of mileage on a vehicle each year. Exceeding mileage limits can tack on hundreds or thousands of dollars at the end of the lease. It's common for contracts to have a clause charging the customer 15 to 20 cents per mile over the mileage limit. Since most people drive about 15,000 miles each year, limits should be set to a reasonable amount of miles. This number is very important because it affects the original lease payment amount.
With a leased vehicle, the customer makes an agreement to take care of the vehicle properly. Maintaining the vehicle, retaining insurance, licensing and inspecting the vehicle fall under this category. Agreeing to not modify the vehicle in any way and repair any physical damage to the car is also part of your leasing agreement. Body or window damage should be repaired before the lease terminates. Before turning in the car at the end of the lease, it's best to wash and clean it. The leasing company will evaluate the condition of the car and you can be charged for repairs. It's best to keep all maintenance records and have your car serviced regularly.
