Leasing is really popular today. About 25% of new car buyers lease their cars and the number goes higher for owners of luxury vehicles. In fact, a full half of customers driving high end model cars like BMWs, Mercedes and Jaguars lease their cars. Today, leasing is a very popular method to “own” a car but the mechanics aren’t nearly as straightforward as an out-and-out car purchase is. Considering leasing a car? Here’s a few things that the finance department at Bossier Chrysler wants you to know.
Advertised vs What’s in Stock
You’ve seen the ads. “For just $99 a month you can drive a brand new Honda Civic.” While this figure is technically possible, dealerships often sell out of the bare-bones vehicles that they can offer such low leasing rates with. Typically the actual rate that you will pay for a leased car will be higher because the vehicle involved is more expensive because it has features that customers really want. These are things like up-graded interiors, air conditioning, infotainment systems and other creature comforts.
So what you should know is that car dealers typically offer aggressive lease arrangements on the bare-bones cars they have in stock, but they typically sell out of them rapidly. Don’t draw the conclusion, however, that since you see rock bottom prices in the TV ads that they are executing a bait-and-switch. (Such routines are illegal anyway.) They do sell out of the bare-bones quickly but keep in mind, you probably don’t want a bare-bones car anyway. Your lease payment will probably be more than what you saw on TV but will be the actual car you want to drive with the features you want.
Selling Price and Residual Value
Besides the selling price, the residual value of the car is the other facet that sets the total amount being leased. Manufacturers set certain residual values for every car model they lease. This residual value will be what they estimate a car will be worth, at a certain mileage and condition, when the lease expires. As you’d expect, a higher residual value lowers the monthly cost that you will pay. High quality cars generally have higher residual value than others.
Beware and Understand the Money Factor
Deep into every car lease is an interest rate modifier called the “money factor.” Unlike the annual percentage rate (APR) laid out in a finance contract, dealers write out the money factor in five decimals. Money factors are adjustments to the annual percentage rates. They vary from car to car and reflect the “deal” the car dealer is offering you. Example: when a car dealer is trying to clean out some excess inventory, they will often tweek the money factor so your effective APR is less than usual.
But wait, there are more fees you should know about. Leased cars come with certain restrictions that you need to know about. For example, as the owner of a leased car, you have to repair any damage that occurs and do it right away. You also have to have routine maintenance performed and you have to keep the vehicle mileage under a certain threshold before your lease ends. These are important restrictions so you should be careful to factor this into your decision to lease a car.
Don’t forget the sales tax also. This can vary more widely than you’d think. Some car dealers collect tax based on the full purchase price of leased vehicle, not the depreciated cost a lessee actually pays. This can be a chuck of money you pay upfront.