Leasing a car is a great option for many people, but when it comes to actually signing a lease, it can be a bit confusing. With so many terms and variables, it’s easy to get overwhelmed and forget to ask the right questions. But it’s important to make sure that you fully understand the lease before you sign anything.
Here are ten questions you need to ask when leasing a car.
#1. Is leasing a car the right choice for me?
The first question you should ask yourself is “should I lease a car?” Leasing a car has many benefits, but it is not for everyone. Leasing a car may be a good choice for you if:
- You like getting a new car every few years.
- You don’t want to worry about selling your car when you want a new one.
- You don’t like working on your car.
- You don’t drive a lot and can comply with mileage limits.
- You are a business owner and want to maximize tax deductions.
Leasing a car usually means that you will have lower monthly payments as well. But leasing a car has some drawbacks and can be too limiting for some people. When you lease, you will have to:
- Stick to a mileage limit.
- Avoid excessive wear and tear.
- Go to a certified mechanic.
Leasing also means that you will not build equity on your payments. So before you lease a car, be sure to ask “should I lease or buy a car?”
#2. Is there money due upfront?
When leasing a car there may or may not be money due up front. Some offers will specify that there is no money due upfront, but these offers usually mean that the monthly payments will be more.
Most leases require an initial payment (also referred to as an “initial rental”). This is different from a deposit, as deposits are refundable and this initial payment is not. This money helps cover your leasing fees and will reduce your total monthly payments.
#3. What is the lease term?
Dealers will have different lease terms for you to select. Leases are most commonly 24 or 36 months, but you may be able to find longer or shorter leases. The longer a lease term is, the lower your monthly payments will be. But if you are choosing to lease a car because you want to have more flexibility in getting a new car when you want to, a 24 month lease will be better.
#4. What is the residual value?
Residual value is the expected value of the car at the end of the lease term. This number is determined upfront and is determine by three factors:
- The capitalized cost (the sale price of the car).
- The lease term.
- The residual lease value percentage.
The residual lease value percentage is based on the expected depreciation of your car. This percentage will vary based on the car’s make and model. A typical 36 month lease will have a residual value around 50%, but these can be as high as 60% or as low as 40%.
The residual value is an important part of your lease for two main reasons.
- It will determine what the monthly payments on your leased car will be.
- It will determine what the buyout price of your car will be at the end of the lease term.
While you cannot negotiate the residual value per se, you can negotiate on the capitalized cost of the vehicle. You should research what the market value of your lease car is before agreeing to anything. Having a realistic and accurate capitalized cost will help you get an accurate and fair residual value.
#5. What is the money factor?
The money factor of a lease is essentially the interest rate of the lease. Also referred to as the lease value, it will be based on the capitalized cost, residual value, lease term, and your credit score.
The money factor is expressed as a decimal number, not as a typical percentage that we are used to seeing with interest rates. You can multiply this number by 2400 to get an approximate APR for comparison’s sake. A money factor of .0025 and below is considered to be a good money factor, which is roughly equivalent to a 6% interest rate.
To get a lower money factor, there are two major factors you can control: your credit score and the car you are leasing. Having a good credit score is essential to securing a good money factor. If your credit score is particularly low, you may have a hard time getting approved for a lease. Leases are generally more difficult to get approval for than financing.
The car that you are leasing is incredibly important to the money factor you will be offered. Selecting a car that has a higher residual value will also help secure a good money factor. A high residual value means that there won't be a lot of depreciation on the car, meaning you will have lower payments.
#6. What are my options when the lease is over?
When your lease is over, you will typically have three options. You can end your lease entirely, turn in your vehicle for a new lease, or you can purchase your leased car. If your lease allows for a car lease buyout, the price of the buyout will be listed in your contact. The car lease buyout price is the residual value of the car plus any taxes and fees associated with the purchase.
Turning in your vehicle for a new vehicle may be right for you if you love leasing and want to continue doing so. You didn’t find the mileage limits or usage restrictions limiting and love getting a new car every few years, you should consider simply leasing a new car.
Turning in your car and walking away may be right for you if you hated leasing and found it too restrictive, and don’t necessarily need a car right now.
Buying your leased car is a great option for many people for a number of reasons. Consider a car lease buyout if:
- You love your car and don’t want to give it up.
- You went over your mileage limit and will owe a lot in fees.
- You have significant wear and tear and will owe a lot in fees.
- The residual value of the car is less than the market value.
Buying your leased car and selling it privately is a great option if you can get a good deal on your car but don’t care to actually keep your car. You can get a car lease buyout loan to assist you with this.
#7. What is the mileage limit?
Every lease will have a mileage limit, and if you go over that limit you will owe extra in fees. Mileage limits are typically between 12,000 and 15,000 miles per year. For every mile you go over, you will have to pay a fee, which can range from $.15 to $.25 per mile. Before agreeing to anything, be sure that you can abide by the mileage limit.
#8. Will there be a wear and tear assessment?
When a lease is returned the car dealer will usually do an assessment to determine the condition of the car. You should find out beforehand what is considered excessive wear and tear. Dealers typically consider the following to fall under the category of excessive wear and tear:
- Large dents
- Cracks in glass
- Stains on the upholstery
- Tears in the upholstery
- Poor-quality repairs
Dealers will allow a certain amount of wear and tear, but if dents, dings, scratches and stains are too large and noticeable, you will be charged a fee.
#9. Can I get out of the lease early?
You should know what your options are if you decide you want to end your lease early. Maybe you hate your new car, maybe you are having trouble making your monthly payments, or maybe you just hate leasing and wish to go another direction. Whatever the reason is, ending a lease early can be very expensive and may even damage your credit, so be sure you know what the process is beforehand.
#10. What payments are due at the end of the lease?
You should know exactly how much you will owe at the end of your lease. Your contract should outline what fees will be due and what other expenses you can expect. You should also ask what will happen to your security deposit. In most cases this money will be returned to you if your car is in good condition. Note that a security deposit is separate from a down payment, which is non refundable.
Those are the ten questions you need to ask when leasing a new car.
If you have a leased car that you are interested in purchasing, Auto Approve can help! We can help connect you to the perfect lender for your car lease buyout loan and even help you apply. Buying out your lease is easy when you have Auto Approve in your corner. Contact Auto Approve today to get your free quote!