We are continually bombarded by new car lease deals advertised on TV, radio and in print. These incredible deals, such as 0% APR or rock-bottom monthly payments are meant to entice customers into showrooms. Though sometimes these offers really do qualify as a good lease deal, other times details in the fine print negate all savings.
So how can you tell if an offer is a good deal or not?
Capitalized Cost: Capitalized cost is the actual value of the new vehicle. Learn the MSRP and factory invoice price to get a ballpark figure of what the capital cost should be. As with buying a new car, you can negotiate the capital cost with your dealer. A good deal would be anything lower than MSRP.
Capital Cost Reductions: After you have agreed on a cap cost with your dealer, then you can calculate reductions. Reductions include your trade-in, down payment, or any other lease special you are taking advantage of.
Residual Value: Look for vehicles with a high residual value, or resale value. Since you’re only paying for using the vehicle for a period of time, you only need to pay for the amount the vehicle depreciates. Residual value is usually expressed in by a percentage. Look for vehicles that maintain at least 50% of their residual value after 24 months.
Money Factor: Watch out! A tricky car dealer may try to confuse you into thinking the money factor is the same as the annual interest rate. A money factor is usually a very small decimal point such as 0.00281. You can use the money factor to calculate APR by multiplying by 2400. Look for an APR similar or less than current new car loan interest rates.
Lease Term: Lease terms vary, often they are 24 or 36 months. As most vehicles begin to depreciate rapidly after 2 years it is best to select the shorter lease term. Before you lease confirm that the manufacturer warranty will cover your new vehicle for the complete lease period.
Monthly Payments: It cannot be stressed enough, even though low monthly payments sound enticing, they should NOT be your reason for choosing a lease. Often lower monthly payments equal higher overall lease cost.
Fees & Taxes: Additional fees and taxes will be added on to the cost of your lease. They often include the first payment, security deposit, acquisition fee, down payment, taxes, and vehicle licensing fees. Review these carefully and ask the dealer to explain if any seem inflated or unfair.
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