To buy a car and to lease one are quite two different things. Once you purchase a car, you become fully responsible for the entire cost of the car, regardless of how long you keep it or how often you drive it. In car leasing, you only pay for a portion of the car. Leasing a car is equivocal to ‘renting a car.’ However, the choice of buying or leasing a car lies heavily on your need and financial prowess.
If you need a new car, but you’re low on the budget needed to make the monumental down payment, then the car lease will be the best bet for you. Leasing involves no down payments as its common with buying. However, you get to make monthly payments, and when you terminate the lease deal early; you have to pay fines as punishment.
Types Of Car Lease
- Closed-end leases
The car’s residual value is determined and fixed before the lease is actually signed in closed-end leases. At the end of the lease deal, you have the option to purchase the vehicle at the residual value. The buyout price is always clearly stipulated in the lease deed.
- Open-end leases
Open-end leases are quite different compared to the closed-end leases. The residual value of the car is estimated to an approximated figure before signing the lease agreement. Here, you-the lessee pays the difference between the pre-determined residual value and the market value of the car, which is determined at the end of the lease.
Common Lease Terms
Before negotiating a car lease deal, arm yourself with the knowledge of some basic terms in car leasing.
Residual Value
This is the pre-determined value of a leased vehicle at the end of the lease contract. The residual value on a lease contract is usually the buyout price at the end of the lease term. The residual value is not negotiable.
Capitalized Cost
Cap cost is the actual purchase price of the vehicle. The price includes the cost of all extras such as vehicle options, extended warranties, life insurance, and rust proofing. The capitalized cost can be viewed as the amount you would pay for the vehicle if you are buying the vehicle.
Capitalized Cost Reduction
A cap cost reduction is a form of a discount off the actual cap cost. It is mostly referred to as the lease special deal.
Dealer Participation
The dealer participation is the rebate or discount, contributed by the dealer, which is aimed at reducing the final purchase price of the vehicle.
Depreciation
Depreciation in automobile leasing is the difference in value between the cost of the new vehicle and the value of the vehicle at the end of the lease term.
Money Factor
This is a number used to represent the rate of base interest of a lease deal. To calculate the interest rate of the lease, leasing companies will multiply the money factor by 2400. The money factor of a lease is used to calculate the cost of money in the same fashion as an interest rate does. The lower monthly lease payments are as a result of the lower money factor.
Monthly Payment
On the car lease deal, the lease is expected to make a payment on a specified date every month. Monthly lease payments on a lease contract typically consist of all applicable taxes.
Net Interest Rate
The total interest rate for a lease is the net interest rate. It represents the true cost of the lease. The lower cost of the lease results from the lower net interest rate.
Gap Insurance
Gap insurance is the form of insurance coverage that covers the difference between the actual cash value of the leased vehicle and what is still owed on the lease contract. If the leased vehicle is destroyed in an accident or stolen, gap insurance coverage protects the lessee against such losses.
Mileage Allowance
The mileage allowance is always stipulated in the lease agreement. Mileage allowance is the maximum mileage the car should be driven over the lease period. The agreement also specifies the cost per mile or kilometer of the car is to be driven. Going beyond this is subjectable to extra payments at the end of the lease term.
Purchase Option
The purchase option in the lease deed permits the lease to purchase the vehicle at a pre-determined purchase price by the end of a lease contract. The pre-determined purchase price is usually stipulated as the residual value in the lease deal.
Security Deposit
This is a sum of money, paid upfront, as security for excess wear and tear on the leased vehicle. The amount is given back to you once the vehicle is fully attested to be in good condition. Most times, the deposit is applied against the final monthly payment.
Points To Consider In Car Leasing
- Nature of a lease contract
- The length of the leasing contract
- The car residual value
- The penalties of terminating the lease
- The amount of mileage the car gives
- The depreciation of the car value
- Additional options and features
Terminating A Car Lease
Getting out of a car lease implies the termination of the lease before the end of the lease period. Terminating the lease deal before it is over can be a lot difficult and complex process altogether. This is the more reason why a good number of leasing companies don’t provide for lease transfers. However, the near easy way to get out of a car lease is to get it transferred to another willing person. This is called a lease assumption.
Lease Assumption
A lease assumption is an agreement whereby you allow someone else to take over your lease in order to get out of your contract without incurring penalties. Once all the lease terms have been explained to the new lessee, the leasing company will then kick off the procedure for the transfer of the lease. The new lessee pays the same amount per month as the original lessee.
What Is A Lease Swap?
A lease swap is a lease assumption that goes in two ways; someone takes over your lease while you take over someone else’s or theirs. This basically involves swapping one lease for another, with no need to start over with a full-term lease contract.
Before you sign the dotted line of any lease deed, make sure to read the fine print. If you fall into the category of people that love a feel of new ride every couple of years. Car leasing is for you. You can land great bargains at car leasing in New Jersey.
