So, you finally choose to lease a car instead of financing or buying one, and you’re stuck on the way, as you don’t know the exact process to follow. It might seem like a giant step to take and a repercussive one at that. However, after reading this detailed, step-by-step guide, you will know what to do and how to do it.
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What is a car lease?
Unlike buying or financing a car, where you pay for the car with the intention of owning it immediately or after a specified payment period, leasing a car is like renting it for a long period, usually between 24 months and 48 months.
In the lease agreement, you must sign a few documents and agree to some things like the mileage, buyout clause, disposition fee, early termination fee, and more. We will look at these in more detail.
Important terms to note during a lease
Below are some of the most important terms to understand before starting the lease deal. Also, ensure that the dealer properly explains their agreement on these terms before signing any documents.
- The capitalized cost: This refers to the price of the car according to the dealer. This price includes the actual cost of the car and the interest you pay on it. It is highly negotiable, and you should ensure to negotiate aggressively; most dealers expect you to.
- The manufacturer’s suggested retail price: This is the actual cost of the car without interest, according to the manufacturer.
- Residual value: The manufacturer sets the price they will buy back the car at the end of the lease. This price is non-negotiable and also represents the cost of the car after the lease if you choose to buy it instead. Be sure the dealer is giving you the actual value.
- Money factor: This refers to the amount of interest you pay on the lease.
- Early termination fee: The lease deal is a contract signed by you (the lessee) and the car dealership (the lessor). If you choose to break this contract before the due date, you will be charged a fee for it.
- Mileage limit: Every car lease limits how much distance you can cover yearly. You want to ensure that you stay within this limit, or you may have to pay a fee for exceeding it. However, you don’t need to worry about it unless you’re using the vehicle for public transport.
- Disposition fee: It refers to the amount you pay at the end of the lease contract when you return the vehicle.
- GAP (Guaranteed Asset Protection) insurance: This is simply a form of insurance that protects you if anything happens to the car during the period it is in your possession.
- Purchase option opportunity: From the outset, you can agree to a purchase option that allows you to buy the car at the end of the lease period if you want to.
Remember, don’t sign documents without fully understanding what these terms mean to the dealer and how much they charge for them.
How to lease a car
Below is a step-by-step guide on how to lease a car.
1. Set a budget
The first step you want to take before choosing a car is to decide your budget. This is because some of the most beautiful cars you like with appealing features may cost more when you factor in some of the other lease fees.
So, consider how much interest you can afford to pay monthly and the compulsory downpayment. Understand that it is not so much about the car that you choose, but the amount you can pay because a failure to see the lease through will warrant an additional fee.
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You should also be sure of your credit score before researching cars. Most dealerships require a minimum score of 700 to lease their cars out. If you don’t have up to that, you can speak with the dealer to see if there is a chance of a reduction. However, you may be unable to get the type of car you want with the type of lease deal you want.
2. Make a list of cars within your budget
Once the budget has been set and you know how much you are willing and able to pay every month, you can go ahead to make a list of cars within your budget. There will always be cars within a reasonable budget.
Ensure to take a look at some cars online before visiting a dealership. You can also look up a dealer’s website to find out which cars they have and their rates on those cars.
3. Narrow down your search by visiting a few dealers
Not every dealer will have the choice of vehicle’s you have on your list, so you must visit as many dealers as possible before making a final decision. You don’t have to increase your budget or limit yourself to a car you don’t want. Check out another dealer if you don’t find the car you want.
You can do all this from the comfort of your home by quickly doing a Google search on dealers near you. Check out their website, hop on a call to confirm if they have the car, and schedule a meeting.
4. Test-drive a few cars and choose one
Once you find a few cars that meet your budget and have all or most of the features you are looking for, give them a quick test drive and select the one that best meets your needs.
5. Negotiate the lease term
Remember that some of the fees are negotiable. The dealer wants to make a profit no matter what, so ensure to negotiate aggressively to be certain you’re getting the best deal.
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Negotiation doesn’t end at just the fees; you can also negotiate things like the mileage limit if you feel like you may need more driving time than you’re being offered.
You should also agree to terms about open-ended or close-ended leases. An open-ended lease means that you will pay an amount on the difference between the original cost of the car and the residual value after the end of the lease. On the other hand, a close-ended lease means that you do not owe the dealer anything once the lease ends.
6. Take your car home and maintain it
Once all lease terms have been completed and the documents signed, you can take the car home. You should maintain the car as much as possible and avoid going beyond the mileage limit if you don’t want to pay an extra fee at the end of the lease.
You should consider signing up for insurance even if you are an expert driver. This is because, no matter how great you are at driving, there will always be wears and tears beyond your control. An insurance company can help you sort out the end-of-lease payment or repair/maintenance costs of up to $5,000, saving you that extra expense.
Frequently Asked Questions
Does leasing a car hurt your credit?
At first, a car lease can reduce your credit score. However, as you continue to pay off the lease without falling short, you can potentially increase your credit score by a lot.
What credit score do I need to lease a car?
To be in a good position to get good cars on good lease terms, you may need a credit score of at least 700. You can speak with some car dealers, who may be willing to give you some cars with slightly lower scores. However, you may not get the car of your dreams.
Is it a good idea to lease a car?
People lease cars for different reasons, including lower down payments, lower monthly fees, the freedom to change cars after the lease period without resale hassle, and more. Depending on what you want, leasing a car can be a great idea.
Does leasing a car include insurance?
Some companies may offer insurance as a part of your deal. However, this does not mean that they should. You can decide to work with another insurance company if you find their offers more appealing.
Do you get your deposit back after leasing a car?
Your deposit is a part of the lease and is non-refundable; you do not get it back when it ends.
Is it cheaper to lease for 24 or 36 months?
Whether you want to go for 24 months or 36 months depends on your budget and how much you can pay monthly. This is because the longer the period, the less you get to pay every month and the more you have to pay on interest. So, choose what works for you.
What happens at the end of the car lease?
When the car lease ends, you must return the car to the dealer and make the final payments. If you agreed to the open-ended lease term, you must pay the difference between the original cost of the car and the residual cost. Also, if you exceeded the mileage limit or damaged the car, you may need to pay some extra fees.
Contact The Experts At Capital Motor Cars
After reading this guide on how to lease a car, you should have a better understanding of the leasing process and feel more confident when making a decision. If you’re interested in leasing a car, consider checking out the online leasing services of Capital Motor Cars. With their user-friendly platform and excellent customer service, they can help you find the perfect car for your needs and budget. Take advantage of their competitive pricing and flexible lease options today!