TOP 5 CAR LEASING QUESTIONS ANSWERED
Leasing a car is essentially using a car for a specific amount of time and then giving it back as if nothing ever happened. A glorified borrowing, if you will. That is, obviously, oversimplifying terms but when it comes down to it it’s basically the same thing. It gives people the opportunity to use a car for he short term and then give it back. But before we get into that, let’s talk about how a person can get into a lease to begin with.
1) What are the most important factors to keep in mind when leasing a car?
The key to getting a great deal on a car lease is to be honest with yourself, something that’s a lot harder to come by than you’d think. If you’re signing a lease for 10,000 miles, your payments are going to be cheaper. But, if you go over those miles and end up actually driving 15,000, you pay exponentially more for those miles after the fact than you would have if you just paid for them upfront. When signing up for mileage, be extremely honest with yourself about how often and how far you generally plan on driving this car. Note that on average, people will generally drive anywhere from 12 to 15 thousand miles per year.
The second most important thing to determine is for how long you want to lease. Don’t forget that the duration of your lease and the mileage are the two main things that determine your residual, or the dollar amount your car is worth after your lease is over (which in turn determines your monthly payment). Remember, you’re only paying for what you use.
Another key misconception to keep in mind when you’re leasing is that what we know as interest rate, isn’t actually referred to as interest rate at all. Instead, dealers will throw around the super confusing industry term“money factor.” Money factor is basically calculated using your credit score multiplied by your car’s residual and some arbitrary number to come to a magic decimal. Which brings us to our next point…
2) Do I need a specific range of credit to lease a car?
Short answer – no. But, as anyone who works in car leasing will tell you, nothing is actually ever really simple in leasing. Sure, it’s possible to lease if you have bad credit, but your payments will be through the roof. Having good credit means that the bank is able to trust you to repay them for the usage of their car. Think of it like a loan. If you have bad credit, chances are you’re less reliable.
So what is good credit? If your credit score is above 650, you’re good. Remember that banks will also look at the way you’re making your payments as well to determine how reliable you are. For example, if your debt to income ratio shows that you spend most of your income on bills and hardly have any left over, banks are less likely to trust you because they can see that you don’t have the available funds to be able to pay your lease every month and also live a sustainable life. Also if you’re generally on time with your payments then banks are likely to assume that you’re more reliable than your past behavior could lead them to believe.
In short, go into a dealership knowing your credit score so that you can better manage your expectations and figure out if leasing really is even the right path for you. Which brings us to our next point…
3) Should I lease or buy?
Some people on the market have ingrained in their minds that buying should always win out over leasing – when that’s simply not the case. Sure, in the ‘80s when people took care of their cars like they were babies and drove them into the figurative ground before buying a new one, that mentality worked. But nowadays, people who buy still change their car about every 4 years.If you’re following along, you could probably guess that
that makes absolutely no sense.
Provided, if you’re going to keep your car for a longer amount of time, it might make a little more sense. But generally speaking, you probably won’t.
Leasing contracts are generally a minimum of 2 years and a maximum of about 3-3.5 years. If you’re a person who is always looking for the next best thing and are into tech, then you should definitely look into leasing. Tech is changing the way people drive, and if you’re a person who embraces that change and isn’t afraid of it, leasing is the cheapest way to stay on top of the curve. With Apple CarPlay programmed into cars, you can link up your iPhone to your car’s interface and have all your apps directly available in front of you without having to fidget with your phone.
Also, leasing means less risk involved when dealing with trade-ins. If you have negative equity on your car having financed it, then the bank is not going to take your trade in easily. Leasing, however, is much more forgiving. And you also have the option to purchase your leased car after your lease is over if you want to.
And finally, the biggest reason we’ve seen people shy away from leasing is the unexplainable need to own the car. “But Carvoy,” our customers whine, “I’m basically throwing my money into the garbage if I don’t own my car at the end of my lease.” Keep in mind, friends, that when you finance a car YOU DON’T ACTUALLY OWN IT YET. The bank does. And it will take you years to pay off. So you might as well lease for less, trade in after a few years if you get bored, or buy out if you don’t. The choice is yours – so keep it a choice. Don’t forget that cars don’t increase in value as time goes on. They decrease. So you’re basically buying an asset that is only losing its value every day you own it.
4) Which parts of my lease can I negotiate?
This is probably the most frequently asked questions we get. The reason being that everyone wants a good deal, but not everyone knows what a good deal looks like. There are basically two parts of your leasing contract that aren’t negotiable: money factor and residual.
Money factor comes straight from the bank or leasing company and therefore have absolutely nothing to do with the dealer and his profits. However, be aware that while money factor shouldn’t be a negotiable part of your leasing contract, dealers will sometimes exaggerate your money factor to be more than it should be in order to pocket the difference. It’s pretty hard to tell when this is happening due to the fact that your credit will also make the money factor higher or lower depending on whether you have a good credit score or a bad one. The best way around this is getting multiple quotes from multiple dealerships to ensure that everything is consistent. If there’s an outlier in the midst of your quotes, then you know that that dealer is trying to rip you off.
Residual is just how much your car is worth at the end of your lease. This has absolutely nothing to do with you or the dealership – this is going to be standard across every dealership you go to as long as you’re looking at the same car and lease terms. These come from the bank.
The best advice we can give you is to negotiate your lease based on selling price, not monthly payment. Monthly payments can be contorted based on downpayments and it’s a lot more difficult to compare quotes that way.
And most importantly, do your research on the car you’re interested in so you know what you’re getting yourself into before you even step foot in the dealership. Check the car manufacturer’s website for any rebates regarding the car you’re interested in so you know what you quality for ahead of time.
On Carvoy.com, we offer information on all the vehicles in our live inventory including MSRP, sales tax, and any/all features the car comes with making it extremely easy to compare and contrast cars you’re interested in. If you have any additional questions, you can just click the blue live chat box on your lower right hand screen and start chatting with one of our Carvoy specialists for any more information on a vehicle.
5) If I get bored of my car in the middle of my car lease, is it possible to trade it in for a different one?
One of the benefits to purchasing a car over leasing it is that there really is nothing holding you to driving that car. There are no limitations as to how many miles you can drive and there are no guidelines as to how long you have to stay in the same car for. If 2-3 years sounds like a commitment you’re just not sure you’re willing to sign up for, then your best bet is to stick with purchasing.
However, there are certain circumstances where you could potentially get out of your car lease earlier than expected (although there are still guidelines here and you cannot just cancel your leasing contract whenever you want without facing the penalties).
And these guidelines are pull ahead programs. What a pull ahead program is is a promotion where a certain manufacturer will incentivize you to release with the same brand again by offering you to get out of your current lease 3-12 months early. Brands such as BMW, Nissan, Audi, Mercedes, and Lexus will often use pull ahead programs to get customers to stay loyal to their brand. You basically just go to your dealership and get out of your lease early without any penalties associated with you breaching your contract.
Another option is to ask for help. If you are in dire need of a break from your lease payments, you could call up your leasing company and ask for payment relief. What that basically does is suspend your payments for a few months and buy you time to save up and get yourself together.
You also could transfer your lease. This is possibly the best way to get out of your lease early without having to pay any penalties. What happens here is that a person who just wants to lease a car for a short amount of time will take on your leasing contract and pay your lease payments for the remainder of your lease – basically taking over your leasing contract for you. Make sure to ask your broker or dealer about this option.
Another option is to simply buy out your lease early and then sell it. This obviously requires you to have the upfront funds necessary to buy out your lease early but this could very well be your best way out without paying any unnecessary penalties.
If there is absolutely no other choice and end your contract early, then it is possible to simply just break your leasing contract. Here, you are not only responsible for a hefty fee for breaking your contract early, but also you’ll be responsible for the depreciation amount of your vehicle. What happens then is that the bank will auction your car off and pay you back for the difference – but the catch here is that they’re not looking out for your pockets, they’re looking out for their own. They’ for the absolutely lowest amount they could get for it and using that money to compensate you (even though it’s not much of a compensation if you’re not actually getting the amount you spent).
Long story short, don’t sign a contract if you’re not absolutely 100% sure that you’re able to stay within the guidelines of that contract.