Beginner’s Guide to Leasing a Car
If you’re looking for a set of wheels but aren’t quite ready to buy a vehicle, then leasing a car may be an option to consider. But how do you know whether buying or leasing a car is your best option? We’ll walk you through the basics of what a car lease entails to help you decide whether it’s the right choice for you.
What is Leasing a Car?
First of all, what does “leasing” a car actually mean? Think of it like renting vs. buying a home. While you’ll still send in monthly “rent” payments, you’ll never actually own the car but are merely paying for the right to use it for a set period of time. Why would anyone choose this option?
If you play your cards right, leasing a car can be cheaper than buying a brand new one. Some people lease in order to be able to drive a nicer car than they can afford to actually buy. Others aren’t ready to be tied to a specific car for the many years it usually takes to pay it off. By leasing instead, they’re able to pick a new car to drive every three to four years.
How Much Does it Cost to Lease a Car?
Much like buying a car, the price of the average lease greatly depends on a variety of factors. The first is the make and model of the car you’d like to lease. As you can imagine, you’re going to be looking at a much higher lease payment on a Jaguar XF than on a Kia Soul.
Your lease price will also fluctuate depending on the length of your lease and how many miles you want to drive the car each month. For instance, you’ll get a cheaper rate if you rent a car for 48 months and drive it 10,000 miles a month than if you rent one for 24 months and drive it 18,000 miles a month. To get an idea of the prices of various lease options, visit Edmunds to get an idea of rental prices in your area.
What is Needed to Lease a Car?
Given that the dealership is basically going to allow you to use their car for several years, leasing terms can be a little pickier than financing terms. If you want to lease, you’ll need:
- A Good to Excellent Credit Score
All of your lines of credit should be paid up to date and your credit rating should be pretty stellar. The better your credit score, the lower your monthly payments are likely to be. If you have poor to fair credit, you’re probably going to need a co-signer to lease.
- Proof of Employment
Along with a credit check, some dealers may ask to see proof of income in the form of paycheck stubs going back about two months.
- Valid Driver’s License and Insurance
Most dealers will require you to have and maintain full-coverage insurance throughout the term of your lease. Make sure to check with the dealer to ensure that you have the proper coverage in place before heading to the lot.
Things to Know Before Leasing a Car
When it comes to leasing a car, there are several things you should keep in mind that could affect how much you end up paying in the long run. The first is that the dealership will likely offer you a lower rate if you pay more money on the lease upfront. The tricky part about this is that if you accidentally wreck the car within a few weeks or months, your insurance will likely reimburse the dealership, but may not reimburse you for the money you paid upfront.
Also, keep in mind that you may be charged for any additional miles you drive the car that exceed the mileage allowance specified in your rental agreement. Last but not least, understand that you’ll be expected to return the car in excellent condition. You may be required to pay for any repairs beyond normal wear and tear.
When to Buy vs Lease a Car?
If you tend to enjoy driving a new car every few years, then leasing may be a viable option to explore. Whether you’ll be better off buying or leasing a car really depends on what type of car you’re interested in and whether you can rent it for cheaper than you could finance it.
This is where doing your homework becomes incredibly important. In some cases, it’s even possible to lease a used car if you’re looking to really cut down on expenses, but it may take a little searching to find a reputable dealer that offers such a deal.
The important thing is to look over the terms of any lease deal incredibly carefully in order to understand any potential fees that could make buying a car cheaper in the long run.
Typical Lease Terms for a Car
The typical lease terms for a car allow you to choose from 24, 36, 48, and 60-month terms. Generally, the longer the term you select, the cheaper your payments will be. What if you’re looking to rent a car for an even shorter period of time?
While it’s possible to rent a car for less than 24 months, it’s going to be more expensive. This is because a car’s depreciation rate is part of what determines your rental rate. Because new cars depreciate in value the most during their first year off the lot, you’ll get stuck covering a large chunk of the car’s value decline.
Negotiating a Lease for a Car
Don’t be afraid to shop around and find a dealer that’s willing to offer you the best deal on a lease. By taking the time to go over the terms of each potential lease with a fine-tooth comb, you’ll save yourself money by spotting any potentially large fees or add-ons.
In particular, you want to make sure that the capitalized cost or “cap cost” remains as low as possible. This term refers to the price that you’ll pay to lease the car, so it should be at the forefront of your negotiations.
Additional Tips when Leasing a Car
Here are some additional tips and tricks to keep in mind before you set out on your car leasing journey.
- By staying open to other models you may be able to find a better deal on a similar car.
- Make sure you only lease the car for an amount of time that it’s covered by a warranty.
- See if the lease includes gap insurance.
- Look for cars that depreciate at a slower rate to save yourself some money.
