Leasing a car is a tempting option if you are not keen on buying a car and prefer new models every three years. Going for a lease means paying low and monthly amounts for a car of your choice. While most people will tell you that buying a car is the best option, leasing can be extremely tempting. The main reason behind this is the low payment that comes with leasing and no worry about the trade-in value. The value of a car starts to fall the moment it is driven out of the showroom. Buying a car means investing a good bit of money at the beginning as well. So, if you are on a budget then leasing is the best option.
Here are some things that you should know before leasing a car.
- Leasing is actually paying for the right to use a car. The cost is higher but convenient for people who are not planning to buy a car at all and prefer to drive new models every three years. Be prepared to pay higher interest rates, extra charges and be as cautious as you are with loans about making the payment regular.
- Taking leases affects your credit score just like taking a loan does. Only with regular and timely payment can you make the credit score better again. Late payment or skipped ones can actually hamper the score to a great extent. So, if you want to exit car lease you must think very carefully.
- Before taking a car lease it is important to understand the terms in connection with it. You may be bowled over by the sales jargon the first time you come across it.
Capitalized cost is the vehicle’s price. It can either be the retail price mentioned by the manufacturer or something based on the negotiation with the dealer.
The down payment is also known as capital cost reduction. In the case you are not planning to buy after the lease, the down payment will not be included.
The probable car value at the end of the lease value is called the residual value. The higher, the better is to lease the car. Some car dealers maintain an entire database of these facts and figures.
Money factor or rate is the interest rate at which you are taking the lease. The interest rate can be negotiated by speaking to the car dealer.
- A lease can be negotiated with the car dealer if you have a bit of time and patience. Unlike a loan, the lease is dealt with directly with the car manufacturer. If you have a good credit score then you can try bargaining with the car dealer to reduce smaller costs such as tire fees, document costs, etc and get a complete waiver. Since the entire focus of the salesperson is on leasing the car, as a customer you can get an upper hand.
- If you are leasing a car you pay less monthly costs but more insurance costs. Therefore, in order to pay less on the insurance front, it is best to purchase gap insurance along with the traditional vehicle insurance. The gap insurance actually bridges the difference between the money being paid on lease and the proper cash value. This is actually helpful in cases where the car gets stolen during the lease period and you have to buy out the car.
- While you have taken a lease of the car, all maintenance and repairs are your duty. You will find that some of the dealerships offer oil changes and tire rotation but you will be responsible for the rest of the repairs. In case the car is new there should not be too many repairs involved. But in case of an unfortunate accident which leads to broken windshields, chipped paint, etc. all costs have to be borne by you. If the lease term is longer and the tires need to be changed during that time then also you might have to bear the cost of the same.
- If you ever have to end the lease before the scheduled time keeps in mind that it will affect your credit score hugely. You will have to pay a lot of money if you have to pre-close it. In case you have money then you can buy the car and resell it. This is one of the easiest ways to terminate the lease. In case the price of the vehicle at the time of the hand over is less than at what you purchased the try to negotiate with the car dealer.
The best thing about a car lease is when you can complete the lease and hand over the vehicle to the dealer and exit the lease without any hassle.