What You Need to Know About Leasing a Vehicle

When shopping for a new vehicle, there are a variety of options open to buyers. One of those options is simply not buying at all. Leasing is the process of paying to drive a vehicle that belongs to a dealership. While some prefer paying to own their vehicle, there are certain advantages leasing offers. If you prefer to drive a newer car more often, avoid value depreciation, and plan on only using your vehicle a moderate amount, leasing might be the right option for you. Before heading to the dealer to get a lease, here’s what you need to know about leasing a vehicle.

Learning the Language of Leasing 

When reviewing leasing options, you’ll likely come across different terms that refer to what kind of lease you would be signing on to. Let’s break them down.

Closed-End Lease: A Closed-End Lease is one of the most common types of leases offered. When the lease is completed, you return the vehicle and walk away. However, typically end-of-lease charges are still applied, such as fees for excess mileage, wear-and-tear, and disposition (the cost for the dealership to clean and resell the car.)

Open-End Lease: An open-end lease is more flexible than the previous option, allowing you to extend the terms of your lease. However, the downside is that the lessee will assume the depreciation costs of the vehicle. This means you pay the difference between the value stated in your contract and the lessor’s appraised value at the end of the lease.

Lease Inception Fees: These are fees applied at the start of your lease and include a down payment, a security deposit, an acquisition fee, first month’s payment, as well as taxes and title fees. Always ask for a full list of what fees will be due prior to signing on.

Capitalized Cost: Capitalized cost refers to the price of the car determined for leasing and the taxes and extra charges that are added on, such as service contracts and registration fees.

Capitalized Cost Reduction: The capitalized cost reduction is similar to a down payment, and can be reduced if you’re trading in a vehicle. This trade-in may reduce your overall monthly payments. 

Breakdown Lease Costs By Time 

When considering a lease, it’s useful to think about the overall costs in terms of when they’ll be due—at the start of the lease, during the lease, or at the end of the lease.

Start of Lease Costs: The costs to consider here include a capitalized cost reduction (similar to a down payment), your first monthly payment, and a refundable security deposit which in some cases may be a last-month lease payment. Additionally, factor in the costs for taxes, registration and titling fees, an acquisition fee (think of it like a processing fee), and freight or destination charges. 

During-Lease Costs: Fees you will be paying during the course of your lease include your monthly payment, any additional costs not factored into the payment which can include taxes not included in the payment, insurance premiums, ongoing maintenance costs, penalty fees for late payments, and safety and emissions inspection costs.

End of Lease Costs: Finally, factor in the costs that come at the conclusion of your lease. Some to keep in-mind include a disposition fee (for the resale of the vehicle), charges for excess mileage and wear and tear, and your final monthly payment.

Negotiate and Shop Around to Get the Best Options 

Once you’re ready to pursue a lease, it’s always a good idea to shop around and negotiate with dealers to get the best deals available. This could include seeking out a lower-value vehicle, whether it be a few years older or simply a more inexpensive brand or model. Always get a full list of upfront costs so you’re never surprised when the bill arrives. Additionally, be sure you fully understand the end of lease costs that can be applied, including what is the allowed mileage and the cost per mile that would be accrued from excess mileage charges. Many lessors offer the option to purchase the vehicle you’re leasing during the course of the lease or at its conclusion. Decide if this is something you’d be interested in so you’ll know when the best time is to buy. Finally, make sure any vehicle you lease offers GAP coverage, which protects you in the case of an accident that totals the car or the vehicle is stolen.

Arming yourself with all this valuable information and taking your time with the process will help you better negotiate a fair lease price and terms and ensure the process goes as smoothly and affordably as possible.