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Getting a lease on a vehicle is a well-suited option for those who are not prepared to make a car purchase. Instead of accessing a car loan, it gives drivers the opportunity to effectively rent a vehicle for a set period of time. With a shorter period and drastically reduced upfront and monthly costs, many households opt for auto leases.
The process of auto leasing is actually very straightforward. A lease enables drivers to access a new vehicle for a set amount of time. The driver and dealer agree on a monthly fee which is paid for over the borrowing period. Unlike other arrangements, leases don’t need approval for a vehicle loan. They also don’t need as large of an upfront downpayment.
A key difference between loans and leasing is that the payments are for the actual driving of the vehicle. Instead of paying for the right to own the vehicle, it is a matter of access and utility. Functioning like a rental arrangement, you only pay the monthly amount for the borrowing period. Once this period is at an end, the driver has the option to purchase the car or to return it.
The lease arrangement does require a small down payment. From there, the only investment is in the monthly payments. This cost encompasses the fee to use the vehicle, any tax and interest, as well as overall depreciation of the car’s value.
Can’t afford your car lease? Check out how to cancel your lease contract early?
There are a lot of different cars that you can lease, ranging from trucks to SUVs to compact vehicles. Leases are, however, usually found on new vehicles. This does not necessarily refer to the year in which the vehicle was manufactured. Instead, it is representative of mileage and relative wear and tear.
In terms of the type of car, you can find just about anything available for lease. Naturally, different dealerships specialize in certain makes and models. Since the vehicle allows you to plan for a specific set of time, there is the opportunity to choose the best type at present. At the end of the lease, you can reassess and determine if you want to buy or simply lease a new vehicle.
When it comes to leasing a vehicle, typically there are four options to choose from.
When looking for a new vehicle, it’s important that you weigh the pros and cons of your financing options. For those considering leasing their next vehicle, these are the factors you should consider.
Having a car is an expense and not an investment. Whether you’re thinking about buying your next car or leasing it, there are costs that you need to consider.
In this example, you’ve gone to a dealership and discussed leasing a car worth $20,000. You have $1,000 to use toward your down payment on a three-year-long lease. Assuming that the vehicle depreciates $3,000 over the course of those three years, with an interest rate of 5%, you can expect a monthly lease payment of $130.23. However, in the end, you will not own the vehicle and must return it to the dealership or trade it in.
Let’s say you want to buy that same car, worth $20,000, using a car loan. There are available loans for those with credit challenges. Interest rates run between 4.9% and 29.9%. This amount compounds monthly. Depending on the rate of interest for which you are approved, and the term you choose, you can own the car in as little as five years. With a 5% interest and three year loan term, you can expect a monthly payment of $569.45.
For those looking to lease a new vehicle, here are the four major steps you should take.
When reviewing a technical document, it is common for people to defer to the expertise of the provider. This is not the right way to go. Document review is your opportunity to ask questions. It is your chance to learn the nuances of a contract before you sign, which is technically your responsibility.
Things to note in your lease agreement:
If you are unsure as to any of the above, it is best to ask before signing an agreement.
Now that you’ve signed the lease and gotten the keys, it’s time to get to driving (and to paying your lease fees). In order to remain in good standing, be sure to never miss a payment. Don’t go over your mileage and take care of the vehicle. When the term ends, you will have a quality automobile to either trade-in or extend the lease on.Â
Lease if…You are unsure as to your long-term vehicle requirements. It is a good option for those who aren’t on the steadiest financial ground or may lack the money for a down payment. If you want to stay abreast of new vehicle developments, a lease may be the best way to go.
Buy if…You are able to handle the regular payments. If you know what you will need from the vehicle into the future, and know that you will rack up a lot of miles, buying the vehicle with a car loan might be the best route.
Equipped with a thorough understanding of leases; their advantages and disadvantages, you can make the best choice for your vehicular needs. By determining your vehicular needs, both in the near and distant future, you can ensure that you are financially secure and have a reliable car in your garage.
Any features or services that are applied on top of the base price of a car are considered add-ons. These can include things such as tinted windows, heated seats, leather seats, alarms, and wheel locks, to name a few. The base price of a car is the cost of the vehicle without any upgrades or added features that can be added after the car is ordered from a dealership. Only standard equipment and the manufacturer’s warranty are included in the base price, but any other fees will be added afterward. CPO cars refer to used cars that have been certified, either by the dealership selling the car or the manufacturer of the vehicle. This gives consumers confidence knowing they are buying a used vehicle that is in good condition. When a used car is obtained by a dealership, it is inspected by a certified mechanic. The car is then repaired if it meets the required standards and is then ready to be sold as a CPO vehicle. A clear title means that the owner of the car has a free and clear title and no longer carries a balance owing on a car loan. There are no liens of the title or levies from creditors. Auto dealerships are businesses that are authorized to sell new or used automobiles to consumers and serve as a direct dealer for automakers Consumers can obtain dealer financing to help fund the purchase of a vehicle. A contract is signed with a dealership that requires a consumer to pay for a specific amount plus interest and funding fees over a certain period of time. Dealers will send the details of the consumer’s financials to various lenders to find one that will approve the loan. Depreciation refers to the decline in the value of a vehicle. Immediately after purchase, a vehicle will become less valuable as soon as it is used. Put another way, depreciation is the rate at which an automobile loses its value over time Vehicles come with a manufacturer’s warranty when purchased, but buyers can choose to purchase an extended warranty. This serves as a form of insurance policy on the vehicle to cover the cost of potential repairs in the future. An extended warranty is usually good for a certain period of time and/or mileage. A contract that allows an individual the right to use or occupy a property for a specified period of time in exchange for a monthly payment. Leases are common for a property like apartments and vehicles. The individual on the lease does not own the asset at the end of the lease’s term, it is strictly for rental purposes. Car manufacturers will offer recommendations on how much a car should be priced at the retail level, known as the manufacturer’s suggested retail price, or MSRP. The purpose of the MSRP is to standardize pricing in the automobile industry so that there is not a lot of fluctuation in price from one dealership to another. A title loan uses the vehicle title as a form of collateral to secure a loan. Borrowers must own their vehicles free and clear and no longer owe any amount on a car loan. A lender will place a lien on the car title in exchange for funds. If the borrower defaults on the loan, the lender can take possession of the vehicle and sell it to cover any losses. A trade-in allowance is the amount that a car dealer will reduce the cost of a new car purchase by after the consumer’s old vehicle has been traded in. It is somewhat like being given credit from the sale of an existing vehicle that is then applied to the purchase of a new vehicle. A trade-in value is the amount that dealerships offer consumers for their vehicle and is typically applied toward the purchase price of another vehicle. Dealerships will assess the value of the vehicle and will base the amount that can be applied to a new car purchase. The consumer will then trade in the old vehicle and the assessed value amount will be deducted from the price of another vehicle. Trade-in value is often different than what the vehicle may be worth when sold in the open market. Every vehicle will have its own unique vehicle identification number, which is used to identify a specific vehicle. No two vehicles will have the same VIN, making them easily identifiable with this unique 17-character code. Auto Glossary
Terms
Add-Ons Base Price Certified Pre-Owned (CPO) Clear Title Dealership Dealership Financing Depreciation Extended Warranty Lease MSRP (Manufacturer’s Suggested Retail Price) Title Loan Trade-in Allowance Trade-in Value Vehicle Identification Number (VIN)
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