When shopping for a new car, many potential buyers contemplate their options with both buying and leasing. And while buying a car can seem like a fairly straightforward process of obtaining financing and closing the deal, navigating a lease can confuse even the savviest shoppers. But depending on your needs and lifestyle, leasing a car can be an excellent option.
To successfully lease a new vehicle, you’ll have to follow a series of steps to help you understand what’s best for you and get the best deal you can.
Step 1: Do Your Research
Understand the Difference Between Leasing and Buying
First, it’s important to understand the difference between leasing and buying. When you lease a vehicle, the lessor remains in possession of the title, and the lease agreement allows you to drive it for a predetermined period of time – typically between two to five years. During this time, you pay a monthly payment and agree to a variety of terms and conditions that will apply for the term of the lease.
Another key difference is what happens when your lease comes to an end and you need a new vehicle – when you own your own car you can either trade it in or sell it on your own. But when your lease comes to an end, you’ll need to give it back to the dealership or leasing company. Depending on your lease agreement, you might have the option to extend your lease or purchase the vehicle.
Know Your Credit History
Leasing companies will look at credit scores when approving a lease. Knowing where you stand before you begin the process can help make things easier for you. You’ll also want to look into what the other requirements of leasing companies near you are so you know what to prepare for before you visit a dealership or leasing company.
Learn the Terms
Next, you should familiarize yourself with the following terms that you’re likely to encounter throughout the leasing process.
- Lessor: This is the company that grants the lease. It’s usually the manufacturer, a dealership, or a leasing company.
- Lessee: This is the person who is leasing the vehicle.
- Rent Charge: This is the main monthly payment you’ll be making throughout the course of your lease. There may be some other costs that factor into your monthly payment, including sales tax, use tax, and other miscellaneous fees.
- Residual Value: The lessor will determine how much the vehicle is expected to depreciate. If the residual value is high, it means the vehicle is likely to retain its value and sell well at the end of the lease. This will play a large part in determining your monthly rent charge.
- Acquisition Fee: You may be charged an upfront fee to the lessor for arranging the lease.
- Disposition Fee: When you return your vehicle at the end of the lease, you may be charged a disposition fee. Lessors collect this fee to cover costs like administrative work, cleaning, and storage.
- Purchase Option: Some leases allow the lessee to purchase the vehicle once the lease has ended. Many leases state the purchase price in the contract or in a handbook.
- Mileage Allowance: How many miles you can drive the vehicle each year. If you exceed this, you’ll be charged a per-mile fee.
This initial research might seem intimidating in the beginning, but understanding all the ins-and-outs is integral to a successful lease agreement.
Step 2: Determine Your Needs
Once you’ve done your research and decided you want to move forward with leasing a vehicle, you’ll want to evaluate your own needs and expectations.
Set Your Budget
Before you start shopping, you’ll want to determine how much you can afford to spend on your lease each month. In addition to a monthly payment, you’ll want to evaluate how much you can put towards a down payment and any other fees that might be due at signing.
When determining your budget, you should also consider the various types of insurance that may be required by the dealership or leasing company. These can include:
- Gap insurance: This is insurance that will cover the difference between your vehicle’s residual value and the amount your auto insurance company will pay out if the car is totaled. This is often included in your monthly payment.
- Wear and Tear Coverage: While it’s not typically required, if you pay for this type of coverage, you won’t be responsible for certain wear and tear costs at the end of your lease. Terms and conditions will vary from place to place, so you’ll need to check with the company to see exactly what it covers. But it’s common for companies to cover up to $5,000 worth of damage, so it might be a good idea if you typically have a lot of wear and tear on your vehicles.
- Comprehensive and Collision Insurance: Collision insurance covers the costs of repairs for any damage that occurs in an accident. Comprehensive insurance covers a broader range of damages, including acts of nature, fire, and theft.
Know Your Own Habits
Take the time to think about your own lifestyle and driving habits. How do you expect to use the car? How far do you plan on driving it each year? You should be prepared to pay more if you typically drive a lot throughout the year and need a high-mileage lease, or if the interior will be facing a lot of wear and tear from kids or pets.
Step 3: Start Shopping
Once you’re well-armed with information, you can start shopping for vehicles that fit in your budget and needs. In this step, you’ll be using many of the same strategies you would if you were shopping to purchase a vehicle.
Once you’ve identified a model you’re interested in, take it for a test drive to see if it’s something you’ll be happy driving for a few years. You’ll then want to contact a few different dealers to find the best price and lease terms.
It’s best to select a vehicle that’s likely to hold its value. This will mean lower monthly lease payments for you. If you do a search for best residual values, you’ll be brought to car websites that hold a wealth of information that you can use as a reference.
As you shop, you might notice that some cars aren’t available for leasing. Many dealerships only put their most popular vehicles up for lease because they’ll need to sell them once the lease is up.
It’s also a good idea to keep your eyes open for any special leasing deals that might be available. Dealers often offer specials like low-interest rates and no down payments, especially if a car isn’t selling as quickly as they anticipated. If you do find one of these deals, be sure to check that there aren’t any limiting terms or conditions involved with the special price.
Step 4: Negotiate and Close the Deal
Just like when you buy a vehicle, you can negotiate some aspects of your lease agreement. The mileage, the monthly cost, and the interest rate can typically be discussed with your leasing agent for a better deal.
After you’ve come to an agreement on the terms, you’ll need to fill out all of the necessary paperwork. This includes the lease application, and if you’re approved, the contract that outlines the terms and conditions of the lease.
At this point, you’ll need to pay close attention to the monthly payment and the down payment amount – be sure that all of these figures and any additional terms match what was discussed when you made the deal. You should also be aware of exactly what maintenance you’ll be responsible for, and if you’re responsible for the cost or if it’s covered by the lessor.
Your lease agreement will generally cover the following stipulations:
- Your Down Payment Amount
- The Length of the Lease
- The Estimated Depreciation of the Vehicle
- Your Lease-End Fees
- The Rent Charge
- Termination Fees
- Mileage Terms
- Definitions of Normal Wear-and-Tear
As with any contract, read it carefully so you know exactly what you’re responsible for.
Step 5: Care for the Vehicle Throughout the Lease
While the vehicle is in your possession, it’s important to be a responsible owner and take care of the vehicle as if it were your own. While some things might seem like a hassle as they come up, remember that you’re responsible for any damages, and taking care of things will save you money in the long run.
A few things you can do to care for the vehicle include:
- Purchase Waterproof Floor Mats
- Use Seat Covers
- Clean Up Spills Right Away
- Keep Up With Routine Maintenance
- Rotate and Replace the Tires
You should also try to keep the vehicle for the entire duration of the lease agreement. If you return it early, you’ll likely face an early termination fee, which can easily amount to several thousand dollars.
Step 6: At the End of the Lease
As the end of your lease term approaches, you’ll want to consider what you want to do next. Depending on your lease agreement, you may have the option of purchasing the vehicle or extending the lease. If not, you’ll need to either start the leasing process over again or look into purchasing a new vehicle. Taking the time to evaluate your needs and budget will help you make this decision.
Around 60 to 90 days before your lease ends, you’ll likely be required to schedule a lease-end inspection. This will determine if you need to make any repairs to the vehicle before you return it. It’s also a good time to complete any maintenance that might need to be done. Your lessor likely has a checklist detailing exactly what’s expected of you and when it should be done during this time period.
If you’re planning on purchasing the vehicle, you should start a conversation with your lessor about that process and begin shopping for auto loans so you’re not rushing to get everything settled in the last minute.
If you’re returning the vehicle, you’ll want to clean it out and wash both the interior and exterior. The lessor will likely do a final inspection at this point, and you might need to sign some paperwork, such as the odometer disclosure statement.
The Bottom Line
While every lease is a bit different, the basic process and the actions you should take throughout the process will remain the same. Being informed, understanding your lease agreement, and being a responsible vehicle owner will help ensure a successful lease.