Leasing is a financing option that can provide lower monthly payments and a brand-new vehicle every few years. Learn how leasing works and find out if it is the right choice for you.
Leasing Basics
When you lease, you do not pay for 100 percent of the vehicle, you simply pay for a portion of the vehicle's value that you will use over the term of the lease, plus rent charge, taxes and fees.
Three factors determine monthly lease payments: vehicle price, the vehicle's value at the end of the lease and the lease charges.
For the most part, lease terms range between 24 and 48 months, though you can find leases from anywhere between 12 and 72 months. When selecting a lease term, keep in mind that if you terminate your lease early, even to buy the vehicle, you will need to pay off the lease and cover all expenses and penalties.
Today, many leases are closed-end leases. This means the vehicle's residual value is pre-set and at normal lease termination you may have no liability if the vehicle is worth less than the residual value.
Negotiate Lease-end Items
- Familiarize yourself with the charges you will pay for extra-mileage. Clarify what constitutes normal "wear and use."
- If you believe you will need extra miles, protect yourself from additional expenses at your lease-end and purchase extra miles up front at a reduced rate. If you do purchase the extra miles, make sure you get a rebate at the end of the lease for pre-purchased mileage you do not use.
Lease Advice
- Negotiate a lease as you would the purchase of a vehicle. Before negotiating other parts of the lease, negotiate the cost of the vehicle.
- Ensure that the vehicle's lease-end value or other capitalized cost reductions are stated on the contract and reflected in the payment.
- Think about the number of years you normally keep a vehicle; this is a good indicator of the lease length you need.
