An auto lease is a financing option where you essentially rent a vehicle for a set period, typically 2 to 4 years. Instead of purchasing the car outright or financing it with a loan, you make monthly payments to use the car for the duration of the lease agreement. At the end of the lease term, you return the car to the dealership and have the option to lease a new vehicle or walk away.
Why Get an Auto Lease?
Leasing a car can be more advantageous than buying for several reasons. Firstly, leasing typically requires a lower down payment and has lower monthly payments compared to purchasing, making it more budget-friendly in the short term. Additionally, leases often include maintenance packages, reducing unexpected repair costs.
At the end of the lease term, you can easily upgrade to a new model with the latest features, without the hassle of selling an old car. This flexibility is ideal for those who like driving newer vehicles and don’t want a long-term commitment. However, leasing does come with mileage limits and potential fees for excessive wear, so it’s best for individuals who drive within these constraints and prefer changing cars frequently.
Important Things to Consider for Auto Leases
For those who fall into this category, here are some of the most important things to consider when negotiating auto lease deals.
- Lease Terms and Conditions:
Pay close attention to the lease term length, mileage limits, and any potential fees for excess wear or mileage. Opting for a term that matches your needs and ensuring that the mileage limits align with your driving habits can help avoid additional costs at the end of the lease. Most auto lease deals have either 10,000 miles, 12,000 miles, or 15,000 miles as the yearly mileage limit.
- Money Factor:
The money factor, much like the interest rate on a loan, significantly impacts the lease payment. Inquire about the money factor and compare it with current market rates. Negotiating a lower money factor can reduce your monthly payments and result in substantial savings over the lease term. The money factor is often determined by your credit score – if your credit is not as high as it could be, it might be in your best interest to hold off on leasing a car until your credit improves and you are in a position to negotiate lower interest on your monthly payments.
- Understand What Happens at the End of the Lease
One of the most common ways people lose money on auto leases is at the end of the leasing period for the vehicle, and this is due to unexpected fees imposed upon them when they return the car. It is imperative to prepare for the end of a lease by paying attention to important details like wear-and-tear standards and mileage limits. A wise course of action during the final stages of the lease is to get a pre-inspection of the vehicle to identify any damage (many leasing companies offer this for free) and fix minor damages before returning the car.
Give the car a thorough cleaning as well to reduce potential charges for dirt and stains. Remember that leasing companies love to charge fees over issues of questionable legitimacy, so keeping maintenance records to prove that the car was serviced according to manufacturer recommendations can help to avoid disputes.Â
Related: How to Get the Best Auto Loan: Tips and Strategies
Your Options at the End of Your Auto Lease
It is also important to be aware that you have several options at the end of a lease other than returning the car and walking away – you can purchase the car at the residual value stated in your lease agreement, extend the lease for a short period of time (an option offered by many companies), or start a new lease on another vehicle. If you decide to buy the car, compare its residual value to its current market value – it might be a good deal if the residual value is much lower than the market value.
