Now is the perfect time to get a new set of wheels. Interest rates are set to increase in the coming months, so pulling the trigger now on a new car might be your best bet to secure low interest rates.
But when it comes to leasing, you might have a lot of questions. Which is right for you, buying or leasing? What do you look for in a car lease? What terms should you know?
Fret not – we’re here to help! Today we are talking all about car leases – the big things and the little things. Because in the end you should be 100% confident you’ve made the right choice with your car lease.
Which is Better, To Buy or Lease a Car?
Deciding between buying and leasing a car can be difficult as there are pros and cons to both. So before we discuss what to look for in a lease, let’s talk about which is better for you: to buy or lease a car?
The Pros of Leasing a Car
When you lease a car, there are a lot of benefits. First of all, your monthly payments will be significantly lower than if you choose to buy a car. Additionally, your warranty and lease agreement will cover a lot of repairs and maintenance. You will also never need to deal with the hassle of selling the car, and can get a new car every few years. For some people, this is an ideal situation.
The Cons of Leasing a Car
The biggest downside of leasing is that it doesn’t give you an opportunity to build equity and the car is not an asset of yours at the end of the day. There are also restrictions of use that may hinder your driving life. There are always mileage limits, so if you drive a lot, leasing will cost you a ton in overage fees. You may be prohibited from leaving the country in your car or using your car for Uber or Lyft. Ultimately the car is not yours, so you can not treat it as if you own it (and forget customizing it in any way).
The Pros of Buying a Car
The main upside of buying a car is that it is yours at the end of the day. You can customize it how you want, you can sell it when you want, and you can decide how and when you want to do maintenance and repairs. On top of that, financing is usually easier to get approved for than leasing.
The Cons of Buying a Car
When you buy a car, you will certainly have to put more money down upfront. In fact, the more money you put down, the better off you will be with your monthly payments. This can be a huge deterrent if you do not have a lot of extra cash. You will also end up paying interest on the total amount of the car, as opposed to leasing where you only pay interest on the car for the time that you use it.
The Major Things to Look for When You Lease a Car
There is a lot to consider when it comes to buying vs. leasing a car. If you ultimately decide that you want to lease a car, here are the top things to look for in your lease.
The Lease Money Factor
Think of the lease money factor as the APR on the lease. Instead of being expressed as percentages, they are expressed as small decimals. To make the money factor easier to understand, you can multiply the money factor by 2400 to give you an approximate APR. For example, if the money factor is .00275, you can multiply that by 2400 to get a percentage of 6.6%.
Just as with an interest rate, the lower the number the better. Money factors are oftentimes not disclosed on the lease sheet, so you may need to ask the salesman what money factor is being applied to your loan. Having a baseline understanding of what a competitive money factor for your credit score is will help you with your decision. If the money factor you are offered is completely out of line and you sign on the dotted line, you could be paying a lot of extra money.
The Cap Cost
The capitalized cost, or “cap cost”, is the market value of the car and the baseline of the lease price. Be sure to check a few different websites such as Kelley Blue Book and Edmunds to get a good idea of what the car is worth. This is a good place to start negotiating if the cap cost is not in line with other prices you come across.
The Lease Residual Value
The lease residual value is an estimate of how much your car will be worth when your lease is over. This is typically represented as a percentage of the car’s MSRP (usually between 45-60%). The residual value matters a great deal for your monthly lease payments.
Say you lease a $35,000 car for three years with a 60% residual value. This means that at the end of three years your car will be worth $21,000. Your lease would be based on the $14,000 difference (or depreciation) of the car in those three years.
But if you lease the same $35,000 car for three years with a 45% residual value, the same car will be worth only $15,750 at the end of the lease. Your lease payments would be based on the $19,250 depricatiation.
Since this can make such a huge difference in your lease payments, be sure to ask what residual value the lease is based on.
The Drive-Off Fees
In order to drive the car off of the lot, there will be upfront costs. This is a combination of the down payment and any additional fees, such as registration fees.
Counter to buying a car, you actually want to put as little money down in the beginning as possible. The way that lease payments are constructed, you do not save a lot of money by paying more upfront. And if your car were to be totaled, there’s no guarantees that you would get that money back.
The Overall Cost
Before signing anything, determine what the overall cost of the lease will be. Multiply your monthly payment by the life of the loan, adding in all fees and taxes. Is it worth spending that amount on something that you will give back at the end of the lease term? Make sure you are comfortable with the total cost of your lease.
Can You Lease a Car Online?
Since everything seems to be online today, you may be wondering if you can lease a car online. And the good news is, yes! In fact leasing a car online may get you the best price as you can shop from thousands of dealerships and services. After you’ve picked the perfect car, follow the steps below to get the best deals.
Research Dealerships and Services
First step (after picking out your car, of course) is to compare the different companies and dealerships from which you can lease. The dealership website is often a good place to start. Start comparing prices and terms to see who has the best rates and deals.
Calculate Lease vs. Buy
Even if you are dead set on leasing a car instead of buying, calculate the overall price of both. Make sure you are comfortable with the lease cost knowing that you will be giving the car back after the term is over (unless of course you do a lease purchase through Auto Approve).
Apply for Your Lease
After you’ve picked your dealership or car service, you can now shop around for a lease. The dealership or service will most likely be able to help you apply easily, but you can also use a different leasing company if you find a better rate online.
Sign the Papers and Get Insurance
Once you’ve been approved for your lease and are happy with all of the terms, you can finally sign on the dotted line. You will need to get insurance, and leases typically have high standards of what type of insurance you will need to get. Make sure you have all of the protection that is outlined in your lease agreement.
Decide on Shipping
The main difference between leasing a car online and leasing a car in person is that you will need to have the car shipped to you (unless it’s from a nearby dealership). Dealerships and services will be able to arrange this for you, but you can also make your own arrangements by looking around online. You can save a good chunk of money by arranging this yourself, but it might be more complicated than going through the dealership.
And that’s what you should think about when leasing a car.
Whether you choose to lease or buy, getting a new car should be an exciting time. Do your research, shop around, and do what works best for your lifestyle.
Do you have a lease that you want to purchase? Auto Approve can help!
Or are you currently financing your car and overpaying? We can help with that too!