subject: Leasing A Vehicle: 6 Questions To Ask Yourself [print this page] Youve done the research, looked at different types of cars, and decided you want a brand-new vehicle. Now your two main options are whether to buy or lease. The right answer (for you) depends on many factors, including your driving habits, budget, and more.
First, you should understand a few things about leasing:
What exactly does it mean to lease a vehicle?
Leasing a vehicle is similar to renting, with a few primary differences. When you lease a vehicle, youll agree upon having possession of the vehicle for a certain length of time. The lease will also specify how many miles you can drive each year each year; if you go over this amount, youll be charged per mile.
What is a lease residual?
The residual value is the estimated value of the leased vehicle at the end of the leasing period or in a nutshell, an educated guess. The longer the leasing period, the lower the residual value.
A residual takes into consideration the expected depreciation of a vehicles value over the life of the lease and is based on things like the make and model of the vehicle, the vehicle models resale history, the expected annual mileage, etc.
Is there only one type of lease?
No, there are two main types of leases open-end and closed-end:
Closed-end This type of lease allows you to return a car at the end of the lease period and decide to walk away or purchase the car. If you walk away, youll still be responsible for end-of-lease charges like mileage and wear and tear. If you decide to purchase the car, the purchase amount is based on the residual value of the car (determined at lease signing), plus a processing fee.
Open-end This type of lease is normally used for commercial business because the market value of the car is determined at the end of the lease period. That value is then compared to the residual value and youre expected to pay the difference, which can be quite large.
What if I need to break the lease?
No one can predict the future. Perhaps you lose your job, or your financial situation changes and you cant afford the lease payments. Luckily when leasing a vehicle, you still have some options:
Sell the car Call your bank or financing company and find out what the current buyout amount is. Then, check out Kelley Blue Book or Edmunds to find the True Market Value of the car by considering mileage, options, your region, and more. If the TMV is relatively close to the buyout amount, consider selling the car yourself. Even losing a bit of money on the sale is better than walking away - doing that is considered a repo and it will negatively affect your credit.
Find someone to take over the lease Check with your leasing company to see if they allow assumptions. Some companies allow you to find someone to take over the lease so you can be relieved of monthly payments and all it will cost you is a small fee to do the assumption.
When deciding whether to lease or buy a vehicle, as yourself the following two questions:
Do I expect to drive a lot this year?
One of the main ways to keep the payments down on a lease is to keep the mileage to a minimum as well. The limit will be specified in the lease contract, but is usually around 15,000 miles. As stated above, if you go over the mileage, youll be charged for it. So, if youre a person who has a long commute or likes to take frequent road trips, owning a vehicle may be the better option for you.
Do I crave a new vehicle every few years?
If youre the type of person who gets tired of your vehicle and often wants something new, a lease may be the best option for you. Youll be able to trade the vehicle in for a new one every two to three years (as long as you follow the terms of the contract), and will always be driving a fairly new car with the latest features and technology.
Next time youre in the market for a new car, as yourself these questions. Doing it now, before making a final decision, can help save you time and money in the long run.
