Car leasing offers certain advantages and it is an attractive alternative to buying a car. A finance company, also known as a leasing company buys cars from dealerships and leases it out to you to use for a fixed time in return of your monthly payments. When you return the leased car at the end of your leasing contract, your monthly payments cover the sale price, finance charges and taxes.
- Advantages of leasing a car:
- Lower monthly payments
- Different newer cars
- Fewer maintenance hassles
- Lower upfront cash outlay
- Lower taxes
- No used car problems
- Gap coverage included
However, car leasing requires more personal discipline and commitment than buying as it is rife with many pitfalls.
Concentrate on negotiating the price of the car
To avoid getting into a bad deal of car leasing, concentrate on negotiating the price of the car with the car leasing company.
Lease a vehicle with the dealership rather than with the car leasing company. You should negotiate your car price as if you are the one who is responsible for paying it with the cash from your own hard earned money. Then apply the same negotiated price to the leasing deal. Do not let the salesman know how much you were planning to pay each month on the lease.
Acquaint yourself with the terms like’residual value’,’money factor’,’capitalized cost’,and ‘capitalized cost reduction’. Knowing the meaning of these terms thoroughly would help you avoid getting into trouble with the deal. You can purchase the vehicle at its residual value when the lease period is over. The residual value should be according to the manufacturer’s suggested retail price (MSRP). Focus on getting a lease contract with the smallest down payment in cash and a very low rate of interest.
Read the fine print in the warranties of the car
To avoid getting into a bad deal of car leasing thoroughly research about your lemon law rights and read the fine print in the warranties of the car you are planning to lease.
Every state has its own’lemon laws’designed to protect consumers from defective cars. If you lease a car that turns out to be a lemon you are covered in most states, except in Alabama, New Mexico, Nevada, Alaska, South Dakota and Colorado. In these states, lemon laws are not expressly extended to lessees. If any protection is afforded, it is only according to the lease agreements and express warranties.
Before you sign the leasing contract:
- Find out if the lemon laws of your state apply to leased vehicles
- Read the warranty on the vehicle thoroughly and check if the manufacturer’s warranty covers the leased vehicle you are planning to use
Get gap insurance
To avoid getting entangled by ugly problems in case your car is stolen or totaled, get gap insurance. It is highly warranted if the car is expensive.
A gap insurance, lease gap or loan gap comes like a blessing in disguise in a world of carjacks and accidents. If you’re working with a small independent leasing company, make sure to check about gap insurance.
Finance companies provide their own gap insurance in the contract, either by including it as part of the monthly payment or by charging a modest premium.
Advantages of gap insurance:
- Covers the difference if your leased car is totaled or stolen
- Pays if you run into trouble with your cash flow and the loan
Chalk out the route or the places you would need to travel
To avoid getting into a bad deal of car leasing roughly chalk out the route or the places you would need to travel on a sheet of paper. A map of the locality, city, state or the country would help you find the shortest route.
A provision in many leasing contracts restricts the places you can drive. Some forbid you from going out of state or out of the country. If you violate these conditions, you may be considered to be in default, which may mean that you will owe the difference between the balance on the lease and the value of the car. If your leasing company is only a local establishment you may have to put up with more restrictions about the place you may want to travel to.
Calculate how many miles you would drive a year
To avoid getting into a bad deal of car leasing calculate how many miles you would drive a year. The lower are the number of miles you travel, the lower are the depreciation of the lease and monthly payment.
A lease allows you 10,000, 12,000 or 15,000 miles per year and if the lease period is 36 months, you should stay under 30,000, 36,000 or 45,000 miles respectively. In case you travel more than your mileage limit, you will have to pay extra, a minimum of 25 cents per every additional mile. Estimate the number of miles you might travel and it would come handy in negotiating the deal before the contract is written to avoid any angst later.
You can avoid paying for extra miles if you buy the car at the end of the lease by paying the difference between the car’s current value and the total lease amount.
Return your car in good shape
To avoid getting into a bad deal of car leasing, return your car in good shape.
Leasing contracts require you to return your car in good shape. A month before you plan to return the car, make a request to your leasing company to inspect it for wear and tear. If there are any dents or chips, get them fixed ahead and do not let the dealer charge you for them. It’s usually cheaper to get the repairs done on your own. One way to avoid paying for the wear and tear is to buy the car at the end of the lease by paying the difference between the car’s current value and the total lease amount.
Carefully choose the timing for leasing a new model
To avoid getting into a bad deal of car leasing, carefully choose the timing for leasing a new model say, at the beginning of the new model year.
Contrary to what people think, the most expensive time to lease a new car is NOT at the beginning of the model year when vehicles hit the showrooms. Actually, you will get the best deal at the beginning of the new model year because many manufacturers start hiking their prices thrice or four times in a year till a newer model arrives. This is the reason, why a lease is more expensive at the end of the model year than it is at the beginning of it.