How to get the best deal on your auto lease
When you lease a car, essentially you're renting it from the dealership (or bank, or leasing company) for two or more years. At the end of the lease term you can decide if you want to give the car back or buy it to own, but during the lease period you do not own the vehicle. Leasing allows you to drive a car you wouldn't normally be able to afford, and to change cars every few years without hassle. When you give back the vehicle you won't owe more money than the vehicle is worth, as you would through car financing. Here are some tips for leasing a car:
- Credit history - In order for you to lease a car, you must have a better credit rating than you would need to take out a bank loan. If you have bad credit, then leasing a new car probably isn't for you.
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- Down payments - A larger down payment usually means smaller monthly payments, but you'll still be paying the same amount in the end. If the car gets wrecked or stolen your insurance will cover the car, but not your down payment - that money will be lost forever. It's smarter to put no money down and use that money to pay for the larger monthly payments.
- Monthly payments - Make sure that you can comfortably afford the monthly payments, because it can be difficult to get out of a lease and you'll be charged expensive early termination fees. You can negotiate the capitalized cost (purchase price) of the car for a better deal and lower monthly payments.
- Lease term - Stay away from four-, five- and six-year car leases because they end up costing you too much money. Many dealers try to push these because they can offer low monthly payments in their ads. Choose a two- or three-year lease only. If you still like the car at the end of the lease you can always buy it.
- Sales tax - When you ask for quotes for new car lease payments, make sure that they include sales tax. Many dealers will leave the tax out to make the payments look more appealing and then you'll be hit with a higher amount later.
- Mileage - Be aware that when you lease a car you are limited to a certain amount of miles. Typically it averages out to about 12,000 to 15,000 miles per year. Should you go over your allotted mileage by the end of the lease you will be charged a fee. If you think you'll be doing a lot of driving, you can request a higher mileage lease, but you'll still be paying for the extra miles - the cost will just be spread out over your monthly payments. Leasing a car probably isn't the best idea if you expect to be driving a lot.
- Car warranties - Most new car warranties last for 36,000 miles or 36 months, whichever comes first. Make sure that the factory warranty lasts the entire lease period. You can purchase extended warranties, but this makes little sense if you are planning to give the vehicle back. If you intend to buy the vehicle at the end of the lease period, then an extended warranty may be worthwhile.
- Trade-ins - If you'll be trading in a vehicle during the lease, make sure that the trade-in allowance is deducted from the capitalized cost, which is the selling price of the vehicle. Some lease contracts don't cover the trade-in amount and some dealers will try to scam you by stealing your trade-in.
- Car insurance - Most dealers are very picky about the insurance coverage that you provide for their vehicle. The requirements are usually different than a traditionally financed vehicle, so make sure that you have the proper coverage. Gap insurance is also recommended for leasing. This insurance covers the difference between the value of your car and what you might owe in case it becomes totally wrecked in a car accident or flood, or if suffers some other form of damage.