Besides paying cash or financing a car purchase, leasing is another option to get into a new car. With a lease you pay for the depreciation of the car for the time you use it plus an interest charge. Leases are attractive for individuals who like to get a new car every few years. Leases have some flexibility, so pick the options that fit your driving lifestyle.
Term
Vehicle leases are typically available with terms of 24 to 48 months. A longer term will result in a lower monthly lease payment, but pick a term that fits with your usual trade cycle. It can be quite expensive to get out of a lease early, so if you trade every three years get a 36-month lease. Also, it is a good idea to pick a term that is less than or equal to the length of the vehicle comprehensive warranty.
Mileage Limitation
Vehicle leases include a limit on the amount of miles the vehicle can be driven. Exceeding the contract mileage will result in an excess mileage penalty when the lease terminates. If you know you will drive more than the contract miles, purchase extra mileage up front. Most lease contracts allow a total of up to 100,000 miles on the contract. The cost of buying miles up front is much lower than the excess penalty rate and is included in the monthly lease payments. Some lease contracts will even give a credit back if you do not drive all of the excess miles purchased.
Gap Insurance
Gap insurance pays the difference between the lease payoff value and the amount the insurance pays if the car is totaled in an accident. Some leases include gap insurance as part of the contract. Find out if it is included. If not, buy gap insurance from the dealership and have the cost included in the payment.
Cap Cost
The capitalized cost on a lease contract is equivalent to the purchase price when buying a car. Like any purchase, this cost is negotiable, so make sure the dealer give you the best price possible. Make sure the price is discounted before any cap cost reduction or down payment you make toward the lease.
Cap Cost Reduction
Cap cost reduction is cash you put toward reducing the cost of the lease contract and lowering the monthly payment. A lease is not an ownership, and any money put as a down payment only affects the payment and not the termination values of the lease contract.
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