The cost of purchasing a car upfront can mean a lot of money. Even if you apply for auto loans, the monthly payments can be too much on one’s pocket. With this, leasing a car may be the most practical decision for them. They’ll be given the chance to drive a car they like for a given time but without the high monthly bills in front of them.
However, a lot of people do not see a car lease as they are supposed to see it. Car lease monthly fees may be cheaper than purchasing a car but if calculated from the start to the very end of the lease term, leasing a car may not be the more practical choice. Read on and find out the costs involved in leasing a car.
Typical Cost Of Leasing A Car
The average cost of leasing a car is $350 monthly.
This includes the monthly fees for a car in a three-year term.
Factors That Affect The Price Of Leasing A Car
Purchase price. The current market price of the vehicle is the main determinant of the cost of the lease per month. The higher the price of the vehicle, the higher the monthly lease will be. For instance, some luxury vehicles that run over $40,000 can cost $1,000 or even more to lease per month in a 36-month lease period. On the other hand, a car that costs less than $17,000 can be leased for less than $200 a month for the same term.
Down payment. Some cars may require $0 down payment while many require $2,000 or more. The initial amount you pay will affect the cost of the lease per month. The higher the initial payment, the lower the monthly lease rate will be.
Residual value of the car. The make and model of the vehicle usually do not say much about the cost of the lease. However, there are some car makes and models that have higher residual value at the end of the term as compared to their counterparts of the same price range. Residual value is the expected future resale value of the car. If the car you lease has a high resale value, the monthly lease can be less expensive because the dealer can still sell it for a high price at the end of the term. Honda, Toyota, and Nissan cars usually have high resale values, which make them the cheapest cars to lease today.
Term. The residual value of a car usually depreciates per year. Hence, the longer the term is, the lower the value of the car will be at the end of the term. This makes monthly rates less expensive but in the long run, longer term leases can turn out to be more expensive.
Mileage allowance. Cars for lease are given a set mileage allowance per year. The usual mile allowance per year is 12,000 to 15,000. If the mile allowance is higher, you can expect the cost of the lease to be higher.
Credit rating. Your credit score can greatly affect the cost of your lease. People who have good credit standing do not have to pay for security deposit.
The initial payment is always an added cost when leasing a car. Though in some cases a down payment is not needed, others may be required to pay a couple thousands of dollars as initial payment.
You can pay for some penalties you have incurred during the lease term once you return the car. For instance, if you go beyond the set mileage allowance, you are required to pay for penalty, which can be as high as 25 cents per mile. Also, there are excessive wear and tear fees that can cost a lot of money if you return your vehicle with deep scratches, torn upholstery, window cracks, and other damage.
A security deposit must be paid up-front when you lease a car. This can be just the same amount or a little higher than your monthly lease payment. This is usually refunded at the end of the term subtracting charges for damage, mileage, and disposition.
One of the most common hidden charges when leasing a car is the acquisition fee. Its average price is $595 but greatly depends on the leasing company and the kind of vehicle you lease.
A disposition fee is often collected at the end of the term to compensate the company for the possible expenses of selling the car you have leased. This is usually a charge of $350. However, in case you want to pay for the car you have leased, this is usually waived.
Some leasing companies collect the sales tax together with the down payment and the monthly fees. However, some companies may ask you to pay for it upfront.
Official fees such as registration, documentation, title, and tag fees will also be extra. These fees will just be the same fees you pay if you purchase a new car. Hence, this will differ from state to state.
If you happen to decide to get out of the lease even when the term isn’t up yet, high termination fees must be paid.
Tips Before You Decide To Lease A Car
Leasing is not for everyone. Hence, before you lease a car, make sure this is a right decision. For instance, if you are hard on your vehicles, purchasing is a better approach since you can be charged high penalty fees if you return the car not in excellent condition. Also, if you drive more than 15,000 a year, leasing may not be a good option for you.
Understand that when leasing a vehicle, you do not have equity over the vehicle at the end of the payment period. Unlike purchasing a car, you do not own the vehicle at the end of the term. Hence, you will be faced with the same expenses if you happen to decide to lease again or buy a new car.
Even if you buy the car at the end of the lease term, understand that this will end up still more expensive than purchasing a brand new one. When you lease, you may pay lower monthly rates but in the end, you’ll likely spend more.
Deal with reputable leasing companies. A lot of companies will charge you a lot of hidden fees in exchange for low monthly fees. Before signing up for any lease agreement, make sure you understand everything including the terms and conditions, the costs, and even the small prints.
Choose a car to lease wisely. A lot of people choose to lease luxury vehicles and end up spending too much on a car that they are purely renting out. If you want to lease a car cheaply, make your own research on the cars that have high residual values after two or three years as they will be less expensive to lease in the first place. To help you calculate the cost of your lease, use this online auto lease calculator.