Leasing a Car: The Ins and Outs

There are many advantages to leasing a car instead of buying. For one, you can trade it in at the end of a few years and choose a new one, and you still have the option to lease or buy. You can also wind up making lower monthly payments, and investing less in repairs and maintenance. Here’s how to go about it.

1.Is Leasing a Car For You? If you like to keep up with the in-crowd and have the latest of everything, leasing a car is a good option. With lower monthly payments, you can trade in your car every two to four years. Especially if you can’t afford to buy new Honda, leasing a car is about 30%-60% less expensive, per month. Most cars leasing doesn’t require a down payment, which makes driving a car today much easier. However, many people like to pay some cash up front, or even trade in an older vehicle, in order to lower their monthly payments.

2. Lease Terms: Many people like cars leasing because the length of the lease just about covers the manufacturer’s warranty. This way, if something goes wrong with the car, you don’t have to pay for it.

3. Tax Friendly: When leasing a car you pay only a portion of sales tax, based on how long you’re using the car. Plus, it’s spread out over the course of your lease into little monthly dividends. And since most new cars are greener than ever, you save money on fuel taxes and lower annual gas prices.

4. Bridging the Gap: Most loan purchases do not come with a clause that protects your vehicle if it is stolen or destroyed and you still owe more than the car is worth. Leases do.

5. Depreciation: Cars leasing works based on the idea that cars lose their value the more they are driven. Certain cars depreciate faster than others, and these cars will have higher monthly leases. Typically, when you want to lease Acura, Toyota or Honda, you will have lower rates than if you wanted to lease Chevy or Cadillac; Asian cars depreciate more slowly than American cars. A car’s value at the end of the lease term is called its residual value. Ideally you want to lease a car whose residual value is at least 50% of the MSRP, or its sticker price.

6. Capitalized Cost: This is the price you pay for the leased car. When you trade in a car, use a rebate or pay up front, it is called a cap cost reduction.

7. Money Factor: This is the interest percentage you pay on your leased vehicle. If you want to convert it into a nice clean percentage instead of a decimal, you can always multiply it by 2400. Ideally, you want a money factor that is lower than (or at least close to) a new-car loan interest rate.

Once you’ve chosen a car and confirmed your credit rating, you should be ready to lease. Have fun driving!