Leasing vs. Buying: What Does It Mean to Lease a Car

Vehicles make your life more functional as you don’t have to depend on public transportation to run errands or travel long-distance. Before you get a new car, ensure you consider your options and decide what option is best.

Leasing vs. Buying: What Does It Mean to Lease a Car - gear knob shifter imageSource: pixabay.com

Why Lease Payments are so Cheap

For brand new vehicles, leasing is always more affordable as compared to purchasing a car. Whether you are paying in cash or financing your vehicle purchase, you will pay more than you would if you chose to lease.

For every new vehicle, three main factors determine the difference in price when buying or leasing. Buyers pay for equity, depreciation as well as interest expense while leasers pay for depreciation and interest expense only.

Leasing a vehicle means that you gain access to it, but the car dealer retains ownership. Access to a leased vehicle is terminated when the leasing period is over. Car leasing is an affordable endeavour because the overall cost for leasing is much lower than the purchasing cost.

Residential Value

When a new vehicle is leased for the first time, it retains significant value once the lease period ends. This is called residual value, and it determines the lease rates of the vehicle. The higher the residual value, the lower the leasing rates. Knowing car leasing tips helps you settle for the best deal.

Ideally, you pay the car dealer the car’s depreciating value based on its current value and what value it will have retained at the end of the lease. Expensive vehicles have a more attractive leasing value as they have a higher residual value. Always consider your financial situation when deciding on buying or leasing a vehicle.

Leasing and Taxes

Even though when you lease a car you don’t get ownership, you are still responsible for sales taxes. Consider shopping around to get a car dealer who offers you the best leasing deal. Ensure you can afford the monthly payments to avoid financial stress.

Mileage

Leased vehicles have a mileage limit of 10,000-15,000 per year. If you exceed this mileage limit, you’ll be required to pay 25% per mileage. It is possible to negotiate for a cheaper or more expensive lease depending on the mileage you see yourself covering.

Don’t Lease Beyond the Car’s warranty

For brand new vehicles, it is always advisable to avoid leasing beyond the car’s warranty. Leasing beyond the car’s warranty will set you up for huge repair bills.

Conclusion 

Consider your financial situation when deciding whether to lease or purchase a car. Vehicles are huge investments, and they make life easier as you don’t have to depend on public transportation to move around. When you want to lease a car, shop around for the best deal because, at the end of the day, you don’t get the car’s ownership.

5 ways to make money on a car lease!

When you are preparing to turn in a lease, always remember to make the right decisions. It would be better to educate yourself on car lease options so you know how to get a substantial cash back on your lease. The extra cash you get can offer you a down payment for buying another car or can be used to apply for a new lease. Here are five ways to earn some cash on a lease.

5 ways to make money on a car lease! - new car image

Photo by Dominik Stötter on Unsplash

Go for the right car

All cars lose substantial parts of their value over the first few years of service. Car leasing companies basically use this anticipated rate of depreciation to determine the value that a car will be worth when the lease ends. The residual value depends on the model of the car. The crystal balls that the leasing companies use to determine the value are usually very accurate. However, if your leased car maintains more value as opposed to the expected one, you stand a chance of earning some money at the end of your lease.

Take all numbers into account

Most consumers will focus on only three numbers when leasing. However, you need to account for other numbers if you want to have a potential for money back when the lease ends and if you want to keep your pocketbook safe. Do not focus on the monthly payment alone. Just like when you would be buying a car, you focus on the total cost.

It would be good if you arrange for a discount from the set selling price. Experts also advise that you only discuss the residual value after the sales price is determined. The aim here is to ensure that you end up with a residual that is going to be lower than the actual trade-in value of the car when the lease ends.

Watch the miles

The mileage on a leased car is just like a two-edged sword. A mileage cap will be set in the leasing terms, therefore, you will have to pay extra cash for extra mileage covered when the leasing period ends. It is important to keep to the mileage cap, though there is no guarantee that a low mileage will maintain a high value for the car. Despite this, note that the vehicle`s trade-in value might be higher as compared to the lease residual value. This means you will be walking away with some cash.

Take care of your leased car

Treating the car with tenderness may not guarantee you cash back but it is a sure way to increase your chances of getting a cash back on your lease and also avoid unnecessary expenses at the end of the leasing period. Dealers will allow for a specified level of wear and tear. If you keep the car in a good condition than expected, the trade-in value may obscure the car’s residual value. This way, you stand a chance to receive a cash back.

Shop around for the best deal when the leasing period comes to an end

As your leasing period ends, it would be wise to begin evaluating the car`s trade-in value in order to know if you have equity in excess of residual value. In case the trade-in value of the car is notably less than the residual value, it is better to take it back to the dealer. In case the trade-in value is greater than or equal to the residual, it would be better for you to begin shopping your car to various dealers in order to determine the one who can offer you the highest amount.