Are you considering leasing a car? If you’ve never gone through the process before maybe there are a lot of things that are unclear or confusing.
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Let’s take a look at the top five most common questions about leasing a car. When you read the answers and get a sense of how it all works, you’ll be well set up for success in finding the right car and getting the best deal on it.
1. Should I lease or buy?
This age-old question is complicated, and we’ve covered it in more detail in previous articles. The answer depends very much on your individual situation, financially and as a driver.
In general, I would recommend leasing if you enjoy driving a new car and not worrying about having to resell it later. It cuts out much of the risk and uncertainty involved in owning a car, not to mention the expense of paying for the car’s entire value (plus taxes on this huge chunk of cash).
In recent years, more and more people have moved to leasing for the greater flexibility and affordability it offers. (Monthly lease payments will generally be lower than loan payments to finance the same car, though of course at the end you don’t own the vehicle.)
If you’re not sure you want a car for the long term, or you just don’t want the hassle of taking care of an older car that’s gone beyond warranty, leasing is a great option. Leasing also protects you from going “upside-down” on your car loan, a situation when the car depreciates so quickly that you owe more than the vehicle is worth.
However, if you want to own your car outright, without the obligation to return it in pristine saleable condition after two or three years, buying is the way to go. It’s best for those who want to choose a car once and not go shopping again for a long time.
Buying is also a better choice if you anticipate putting a lot of miles on the vehicle, since lease contracts include mileage limitations.
But remember that if you decide to lease and want to keep the car, you can always take the buy-out option at the end.
2. How do I choose the right car to lease?
Choosing the right car is again a question with a lot of individual variables. The best way to start is to clarify what you need in a vehicle, what you want and what you don’t want. Be realistic and pragmatic to set yourself up to choose a car that will suit your lifestyle, not your fantasies.
Once you have an idea what you’re looking for, there are a few ways to go about finding the right model.
- Online research. It pays to do your homework no matter what channel you go to next to find your car. Take a look at car review sites, see what drivers are saying and keep track of the pro’s and con’s of every model you’re considering.
- Going to a dealership for help choosing a car has its advantages – you can hoist the research effort off on someone who really knows what’s out there – but proceed with caution. Never forget that salespeople are out to sell cars, ideally the most expensive one they can talk you into buying! Be sure to come with a clear idea of what you want and stick to your guns.
- Auto Brokers. Auto brokers are professionals who act as a third party in car deals. They can help locate potential vehicles for you and negotiate with the dealers, usually for a flat fee. Working through a broker cuts out much of the headache of car shopping and they can often negotiate for a better deal than you would have managed.
- Online leasing. Maybe the way of the future, you can now choose a vehicle, locate it, structure your own lease terms and have the vehicle delivered, all on your screen. Tools like Ignite, Capital Motor Car’s breakthrough online lease service, make this possible, allowing for a degree of clarity and transparency that’s often missing in conventional dealerships.
3. What type of credit do I need?
Many people think that to get approved for a car lease, you have to have a premium credit rating.
While those with very low credit may have trouble getting approved, leasing is accessible to customers with a wide range of credit scores, including those whose scores are too low to get approved for a loan to buy the same car.
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The minimum FICO score to get a lease is generally around 620. Below this it will be considered a nonprime or subprime lease.
This doesn’t mean that you can’t lease a car if your credit is below the line! It just means you might not get such favorable terms.
The terms of a lease contract depend very much on the lessee’s credit score, since this is how banks determine financial reliability. Someone with excellent credit may be offered a much more generous contract, since they’ve already demonstrated their ability to pay. They may be eligible for zero-down lease offers and other special deals.
A person with a lower score is considered more of a risk, so more restrictions will apply. You may have to pay a larger down payment and higher interest rates.
If your credit is really low and no-one will approve you for a standard lease, there are still a few options:
- Find a lease transfer. Sometimes people want to get out of their lease before the end of the contract, and they look for someone to take over the car for the remaining months. Credit requirements for transferring onto a lease like this are much looser than for starting a new lease. You can find leases up for transfer on sites like LeaseTrader or SwapALease.
- Co-sign with a guarantor. If someone with higher credit co-signs your lease, you can get approved for a lease at their credit level. (This person will be responsible in case you have trouble making your monthly payments, so it should be family or a very trusted friend.)
The good news is that successfully completing a lease contract is a big boost to your credit score! Even if you need a guarantor or can only get a lease with hard conditions this time, by the time you’re up for your next lease contract you might be able to find a much better deal.
4. What parts of my lease can I negotiate?
When you sign a lease contract, you’re not paying just one thing. The initial cost and your monthly payments are determined by a whole collection of prices and fees. Some of these you can and should negotiate, others you have to just accept as they are.
First a note on negotiation: how you lease the car makes a big difference. If you lease from a dealership, the price you pay in the end depends very much on the dealership itself (each one will offer different prices on the same car) and your skills as a negotiator. While leasing in person, it really pays to shop around and push for the best possible deal.
On the other hand, if you make a lease online, what you see is what you get. Through services like Ignite, Capital Motor Car’s new lease-finding tool I mentioned earlier, you can see every charge and fee in one easy-to-follow breakdown.
The flip side is that you don’t get to negotiate. So if you’re a strong bargainer, you may be able to strike a better deal in person, but online at least you’re guaranteed a fair price with no hassle.
Back to what you can and can’t negotiate.
Experts say that you should start negotiating for the car as if you were going to purchase, by agreeing on the cap cost (the plain sales price of the vehicle). From here, you can propose a lease and start working on the terms.
You can negotiate for a better deal on these elements of the lease:
- Interest rate (money factor)
- Cap cost reduction (down payment)
- Buyout price
- Mileage cap and charges
- Trade-in value
Other factors are determined by the market at large, and you shouldn’t waste your time trying to cut a deal:
- Residual value
- Acquisition fee
- Disposition fee
- Purchase option fees
- Taxes and registration fees
5. What should I expect at my lease signing?
Finally signing off on that contract is exciting! Just keep it cool and make sure everything is in order before driving off to celebrate.
At the time of finalizing your lease contract, the dealer will drop a weighty load of paper on the desk. Don’t just scribble your name on everything without paying attention: read over the agreement with care – and ideally, with a legal jargon-savvy friend to back you up – and don’t be shy to ask questions.
Look out for:
- Lease agreement contracts with the bank and the dealership
- An agreement to provide sufficient insurance
- Your credit application
- A document granting power of attorney to the dealership for DMV registration
- Lemon law disclosure if it applies in your state.
You will also have to pay something upon signing, even for zero-down lease deals. This will typically include the first month’s payment, taxes and fees, a down payment if applicable and possibly a security deposit.
I hope this answers your most burning questions about leasing a car! Got more to ask? Drop us a line at Capital Motor Cars.