Car Leasing Benefits
Who benefits the most from a car lease?
The person who benefits the most from leasing is the person who meets a few criteria. Firstly, you don't drive a massive amount of miles per year. If you are the kind of person that likes to visit your aunt a thousand miles away on a regular basis, leasing is not going to be good for you, because you're going to be bouncing your head up against those mileage limits. If you're the kind of person who doesn't like to take care of your car, if you don't follow the maintenance schedule, if you don't mind when it gets dirty and scratched, or you spill a coke on the passenger seat, leasing is not for you because you're going to get nailed when you come back in and get hit with cleanup fees. If you're the kind of person who likes to have the latest and greatest, leasing can be a real advantage, because you're in the market very often. Every two, three or four years, you're going in to re-lease a vehicle, or at least trade in your current one and get something new. If you're the kind of person who does enjoy having the new look on the street, then leasing a car could be a real advantage.
How does a car dealer make money on a lease?
Car dealers can make their money on a lease by basically suspending the rules of negotiation and saying that you're not allowed to negotiate the transaction price, or in leasing in this case, the cap cost of a vehicle, and this is not true. So, in essence, they can make money on holding to that MSRP as closely as possible, and therefore expanding the gap between the price of the vehicle new, and the price of the vehicle at the end of the term. Another advantage is, at the end of that term, the dealer's going to be getting that vehicle back into their inventory, and if it's been well-maintained, they can clean it up, certify it, and possibly sell it as a certified pre-owned vehicle, or as a used vehicle the history of which they know very cleanly. So, they're able to basically sell the same vehicle more than once. The ideal situation is a dealer is really able to sell the car three times: first as a lease to a first-time buyer; second as a certified pre-owned vehicle, or used vehicle, to the second buyer; and then third as an out-and-out used vehicle when it comes back in as a trade-in by the second buyer. In essence the dealer is able to sell the vehicle, albeit always at a lower price, three times.
Do lemon laws apply to a leased vehicle?
Lemon laws apply to leased vehicles, but vary state by state. So you need to check with your authorities at your Department of Motor Vehicles to see, if you've got a problem with your leased vehicle, if there's any recourse.
How are lease payments calculated?
The calculation of lease payments on a car is very similar to a purchase of a vehicle. With purchasing, you take the cost of the car, plus interest, and divide it over the term of the loan. In a lease, you're taking the cost of the car, plus interest, minus the expected resale value, and then dividing that over the term of the lease.
What does "option to purchase" mean?
Option to purchase in a lease is basically at the end of the term (let's say at the end of 36 months of a lease), you have the ability to buy the vehicle at a predetermined price. The issue is that you need to research to find what the vehicle is actually worth at that point, and that number is set as an educated guess three years prior. Look at what the actual value is. If the vehicle is at or higher than your option to purchase price, then it might be a worthwhile investment. If the actual market value is below your option to purchase price, hand the keys back and look at your next vehicle. However, if you love the vehicle and you found that it really met your needs, and you know that the market value has actually depressed more than expected, this would be a good time to hand in the keys to your lease model and go find one in the marketplace for a price lower than your option to purchase price would be.
What is a "security deposit"?
A security deposit is often asked or required in a lease, especially if you have less than stellar credit. The dealer needs to make sure that any fees that he's going to incur at the end of the lease term are covered. As an example, if you return the vehicle and you're going to just hand him the keys back, you don't want the vehicle any longer, and he wants to charge you for additional wear and tear. The dealer may say that there some scratches in the bumper or a dent on one of the doors. As the owner don't see them, on purpose sometimes and you decide that it's a fee that you don't want to pay. The security deposit is there because then the dealer has a recourse, that if you absolutely demand that you're not responsible for that additional wear and tear, he's got a fund that he can rely on and use to deal with the situation.
What are "up front costs" in a car lease?
In most leases, you can anticipate as a first month's charge to pay the first month's lease payment along with any and all license and tax issues. Your payment may be $500 a month on the lease, but expect to spend more in the range of $800-$1,000 in that first month to cover all of those additional charges.
What is meant by "wear and tear"?
Wear and tear is a key component of any lease and is often a big point of contention when you go to hand the vehicle in at the end of the lease. Wear and tear reflects how you've taken care of the car, both mechanically - have you followed its maintenance schedule and treated the car fairly? - as well as how you have treated it cosmetically. Don't forget that the dealer is ultimately looking to resell that vehicle as a used vehicle after you walk away from it. If he has a great amount of investment he has to make to bring it back up to a sellable state, then there's going to be charges involved in that. Wear and tear is a grey area: there's no defined list of things that are allowed to happen to a vehicle without incurring additional charges, but it's a general sense. If the vehicle has some real damage that needs to be addressed - scratches in the bumper, cracked windshield, stains in the carpet or the interior - that would be considered excessive wear and tear. General wear and tear - floor mats that might need to be replaced, a scratch here and there, maybe a nice new coat of wax - those sort of things are generally allowed. Especially - and I add that especially - if you're looking to lease or purchase your next vehicle from that same car dealer. Quite often those wear and tear charges can be ignored or shifted into your new purchasing plan. That's where it becomes advantageous to do your next vehicle through the same car dealership that you leased the first one from.
What is a "walk away" car lease?
A walk away car lease is really just another term for a closed end lease. The residual value, or resale value, of the vehicle has been set at the opening of the lease contract, so you know exactly what it's worth at the end of the term, and if it's not a price you want to pay and you're ready to get your next vehicle, you hand the keys off and you're all done.
