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- Do you typically keep your vehicles in good condition and change vehicles every few years? If so, you may be right for leasing. Lease providers require you to keep their vehicle maintained and repaired, with no more than normal wear and tear. If you don't, you'll be charged at end of your lease.
- How is your credit rating? If you have a history of paying your bills on time and don't have excessive debt, you are a good lease candidate. Otherwise, you may be required to make a large down payment and pay higher finance charges or, worse, be refused opportunity to lease.
Shopping for a Lease
The most important element of a good lease deal is price of vehicle. Regardless of whether you buy or lease, you should always get best possible price first. When leasing, this price becomes capital cost, or "cap cost." Prior loan balances and fees may be added. Rebates, discounts, down payments, and trade-in credit are subtracted. The lower capital cost, lower your monthly payment. This is only element of a lease deal that a dealer directly controls.
The remaining elements of a lease — money factor, residual value, and related fees — are controlled by lease provider and are not negotiable.
Since a lease is simply another form of financing, interest charges apply. These interest charges are known as "money factor." Money factor is expressed as a very small number such as .00375, which is equivalent to 9% annual interest rate. Again, a small money factor results in lower monthly lease payments.
Residual value is an estimate of a vehicle's wholesale value at end of a lease term. The longer lease, smaller residual value. Your lease payment is primarily determined by difference between cap cost and residual value, which is amount that value of vehicle depreciates during lease. The higher residual value, lower lease cost.
Sales tax may also be included in your monthly payment, depending on state you live in.
You can easily calculate car lease payments, once you know key factors, using this Lease Calculator by LeaseGuide.com.
There may be certain fees associated with your lease. The fees that lease providers charge vary both in kind and amount. One of most common is an "acquisition fee", which is an administrative charge for work in initiating a lease. Another common fee is a disposition fee, usually charged at end of your lease when you return your vehicle.
You may also be charged at end of your lease for excessive mileage, damages, and unusual wear-and-tear.
At beginning of your lease, you will be asked to pay first month's payment, a security deposit, a down payment, if any, and applicable miscellaneous fees associated with licensing a vehicle in your state. You will also be asked to show proof of insurance.
Driving Your Leased Vehicle
Your vehicle must be driven and cared for according to terms specified in your lease contract. Generally, this means keeping vehicle in good condition, using it for lawful purposes, maintaining insurance, and allowing it to be driven only by licensed drivers.
Al Hearn is founder, owner, and operator of www.LeaseGuide.com, a source of information and advice for automotive consumers who are interested in car leasing. LeaseGuide.com has provided help to thousands of visitors since 1995.