Understanding A Car Lease

THE BASICS OF LEASING A VEHICLE

Remember that you are driving a vehicle that will be returned. At the end of the lease, the car has a residual value. Lease payments make up the difference between what the car was worth before you drove it and its residual value, as well as including the cost of financing (interest factor).

STEPS IN LEASING A CAR

1. Determine the type of car you desire and the options on the car
2. Negotiate the price of the car as if you were paying cash
3. Select the length of the lease and the frequency of payments
4. The financier buys the vehicle from the supplier You pay rental on the vehicle

PROCESS TO OBTAIN THE BEST DEAL

Call a dealership and get a leasing offer over the phone. State that you want to pay $1,000 down on a three year lease. Once you get a quote, call another dealership to get second estimate. This procedure is similar to buying a new car. Make sure the offer includes any fees or taxes.

CLOSED END LEASE vs. OPEN ENDED LEASE

A Closed End Lease, often called a walk away lease, is the most popular type lease for non-commercial transactions. In a closed end lease, a purchase price at the end of the lease is agreed upon up front. You have the option to pay this price and buy the car (plus administration fees). If you choose not to purchase the car, the car becomes the property of the financier.

An Open Ended Lease differs in that the value of the vehicle is assessed at the end of the lease. You are responsible for the difference between the car’s actual value and the amount estimated at the start of the lease.

• Although the Open Ended Lease is seldom used in non-commercial leasing, be certain that your contract is a Closed End Lease. This places more financial risk on the financier.

DURATION OF A LEASE

A lease typically covers a period from two to six years.A four year lease is the most common and offers the best economical terms.A three year lease insures that the car will remain under factory or dealer warranty.

The law requires the following information be provided to you:

• The amount of any advance payment, such as a security deposit
• The details of your regular payments- number, amount, dates payment is due
• Penalties for default or late payment
• The amount you must pay for license, registration and taxes
• Maintenance fees and responsibilities for maintenance/ repairs
• Insurance you need
• Warranties regarding the vehicle
• Standards for "normal wear and tear"
• Procedures for canceling the lease and charges applied to do so
• The possibility of purchasing the car and terms involved to do so

AT THE END OF THE LEASE

You return the vehicle to the financier.You will be held responsible for any failures to meet the lease agreements.These include any unexpected damages and exceeding the allotted mileage.

TERMINOLOGY OF A LEASE

• The term money factor is another way of saying interest rate.
• The residual value of a vehicle is important in leasing a vehicle. Some vehicles depreciate faster than others. Be wary of a low monthly payment based on you later paying for the difference in the original value of the vehicle and its residual value at the end of the lease.
• In subsidized leases, the interest rates are very low and residual values are high.
• In advertising low lease payments, the dealers may not have yet added taxes and fees and a down payment is often required. It doesn't take a rocket scientist to understand that the dealer can easily quote a low lease payment if the fine print specifies a large initial deposit.
• A subsidized lease is generally the best lease economically.
• Gap insurance insures that at the end of the leasing period, you will not be held responsible for damage done to the vehicle. This may cost $3,000 to $4,000 over the life of a lease.