10 answers you need before signing for a lease
For some, leasing a vehicle is
a better option than buying. Before deciding to go forward with a lease, consider looking into the following topics.
Before choosing a vehicle…
Lease specials:
According to Edmunds.com’s Director of Remarketing Joe Spina, automakers often offer highly discounted lease specials on slow-selling models in order to try to boost interest. When you walk into the dealership, make sure to ask the salesperson about any of these possible offers. However, the quote given will not always be the final price. See below for more information.
Once you have a specific vehicle in mind…
Fees:
The first thing you will want to ask after expressing interest in the lease specials is what the vehicle’s “drive-off” fee is. Drive-off fees are a combination of the down payment and additional fees. Of course, you want to pay as little as possible upfront; however, that means a higher monthly payment. Other fees include acquisition and disposition fees, which unfortunately cannot be negotiated, but the security deposit can be waived. No matter the fee, it never hurts to question the dealer.
Down payment:
Bankrate.com states that your down payment can consist of many things, and as mentioned above, some may be negotiable.
“It can be made up of payments [for such things as] the security deposit, title fees, capitalized cost reduction, monthly payments paid at signing and registration fees,” the website explains.
Interest rate:
Another negotiable aspect is what people in the industry call the “money factor.”
“The dealer converts the interest rate into a mysterious-looking decimal number. To convert the money factor back into an interest rate, multiply by 2,400. So if the money factor is 0.00125, multiply it by 2,400 to get 3 percent,” explains Senior Consumer Advice Editor of Edmunds.com Philip Reed.
Always ensure your money factor/interest rate is parallel to what you deserve for your corresponding credit score.
Residual value:
This is the amount the car will be worth at the end of the lease. You will want one that holds its value — that is, it has a high residual value. The figure is an estimate set by the leasing company, and you can always ask the dealer what it is.
Lease term:
Most terms are 24, 36, 48 or 60 months, but there are odd terms put out there designed to confuse you.
“A 39-month lease based on the 36-month residual value of the car will give you lower payments, but you’ll pay more overall,” offers Reed as an example. “And you might be driving for three months without a factory warranty, so a major breakdown could cost you big-time in repairs.”
Miles included:
The industry standard for a lease is 12,000 per year. So if you hear of a deal that sounds great but includes only 10,000 miles, it is obviously too good to be true.
Gap insurance:
You will definitely want to know this cost in the event of an accident — or any damage at all, including a mileage overage — before you return the lease vehicle.
“This insurance will pay the difference between what you owe on your leased vehicle and what it is worth if it is wrecked or stolen. You can get it with the lease or ask your insurance company,” Bankrate.com states.
Regarding the lease’s end…
Lease transfer:
Given today’s consumerism, flexibility is key, which is why car shoppers want to be able to change vehicles more often, even when under a lease contract. You may want to ask ahead of time if you will be able to transfer the lease to another person for the remainder of the term. Some dealers may not know the answer offhand, but leasing companies will, so it’s a good idea to ask beforehand so you know all of your options.
Open vs. closed-ended:
Most leases are closed-ended, meaning you return the car at the end of the lease, pay any costs due or buy the car at its residual value.
“If the car is not worth the residual value figure at that point, you’re not responsible as long as the car has normal wear and you haven’t exceeded the mileage limits,” Bankrate.com states.
Less common is the open-ended lease. If at the end of the term, the car is not worth the estimated residual value — as usually decided by an outside party assigned by the dealer — you pay the difference. This could lead to some unwanted hassles, but you should be fine as long as you read and agreed to all the fine print in your lease contract.
Once you obtain all the answers to these questions, you should be able to ascertain whether the deal will provide you with a better overall experience than buying a vehicle would.
Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.