If there was an object that Americans love the most, it has to be their cars. This is why a lot of people don’t entertain the idea of car leasing thinking that it’s temporary and impersonal.
But leasing a car is actually a smart option if you still can’t afford to buy a car outright but you need a new ride for safety and performance reasons.
But what exactly does leasing a car mean? Here are some things you need to know to understand the process of car leasing and the benefits you can get from it:
What does car leasing mean?
Leasing a car means conveying the use of a vehicle for a specified time period in exchange for a payment. The difference between leasing and financing is that the latter means you will be purchasing the car to own while with leasing, you will never get to own it. After the contract period, you will need to turn the vehicle back over to your lessor.
What are the advantages of leasing?
One of the biggest benefits that you can get from leasing a vehicle is that you get to drive a new car that will remain under warranty throughout your contract period. This means you’ll only have to worry about routine maintenance and nothing else. Leasing a car also means paying a smaller amount each month than when you purchase a vehicle. This is because your lease payment is based on the depreciation value of your car instead of its full value. So, if you’ve been dreaming of driving a nicer and more expensive car but you can’t afford to buy one yet, leasing is definitely a great option for you.
How does car leasing work?
Once you’ve decided to lease a car, it’s very important to understand the basic terms used in a lease agreement to know if you’re getting the best deal or not. One of the first terms that you’ll come across is the Manufacturer’s Suggested Retail Price (MSRP) or the full value of a new car that you will negotiate down to a lower amount that will be your Capitalised Cost (Cap Cost).
Mileage Allowance is the maximum number of miles that you can drive the leased vehicle per year as agreed on the lease terms. This normally ranges from 10,000 to 15,000 per year. When you exceed your mileage allowance, you will be charged an additional fee of up to $0.25 per mile.
You should also learn about the Purchase Option Agreement where you get the opportunity to buy your leased car after your lease period ends. You can have this included in your contract for an additional monthly payment.
What are some useful tips for leasing a car?
To make sure that your car leasing journey is successful, here are some tips that you should keep in mind:
- Pay a bigger deposit:Ask your lessor if you can pay a bigger deposit upfront so you can reduce your monthly payments. Some leasing companies also lower the interest rate of your leased vehicle if you put more money towards your deposit, which saves you more money per month.
- Pay for the lowest mileage:You will be asked to choose the mileage that you need for your leased vehicle, which corresponds to a certain price. Going over that mileage allowance will result to additional charges, but that’s better than paying for the biggest mileage and not using all of it. The leasing company will not reimburse you for the mileage you didn’t use.
- Find good gap insurance:Not owning your leased car doesn’t mean that you’re not liable for payments if it’s damaged or stolen. To make sure that you won’t be shelling out money for unexpected expenses, ask your lessor if gap insurance is included in your contract. If not, find an insurance company that offers this plan.
- Choose a shorter lease:When you lease a new car, it’s still under warranty and maintenance costs are relatively low. But when you lease it for too long, these privileges will run out and you will be spending more. If you want to drive that car for five years or more, just consider buying it.
In the end, leasing a car definitely has a lot of benefits. You just need to be smart about finding the right leasing company, reviewing the terms of your contract, making consistent payments and being responsible in using your leased vehicle. And of course, don’t forget that everything is negotiable, so don’t forget to work with your lessor in coming up with a price and term that you’ll both benefit from.
