Even though the car leasing market has been growing over the past few years, some people are still afraid to take the plunge when it comes to leasing a vehicle. In some cases, such as bad credit, leasing should be approached with caution; others, however, should feel free to dive in. We’re here to bust some car leasing myths wide open.
Myth No. 1: Leasing Isn’t a Good Deal for Customers
Leasing certainly isn’t for everyone, but for those who can lease, it can be a great deal. In fact, leases typically come with lower monthly payments than financing because you’re only paying for your use of the vehicle, not the whole thing.
Most leases are for new cars, and they typically last 24 or 36 months, auto loans typically last much longer, around 60 to 72 months. Let’s look at what a good deal leasing can be.
If you were to finance $30,000 with a car loan for 60 months with a 5% interest rate and a 6% sales tax, you’re going to end up paying $600 a month. If you want to lower your payment, and stretch your loan to 72 months, you still have to make payments of $512 a month.
Leasing, on the other hand, can be a good deal because you’re not paying for the entire $30,000. If you wanted to lease this vehicle for 36 months, and the lessor determines you’re going to use about a third of the car’s value, you’re only going to make payments on $10,000 plus the same 5% interest rate and 6% sales tax. So, for this lease you’re only paying $405 a month.
Myth No. 2: You Can’t Negotiate on a Lease
This is not true at all. In fact, there are several things you can negotiate on a vehicle lease:
- Capitalized cost – This is the amount you’re financing for a lease, and it’s always a good idea to negotiate this as low as you can get it. The cap cost, as it’s called, includes the price of the car plus any taxes, fees, and additional equipment not paid for in cash.
- Documentation fee – “Doc fees” are charged by the dealership for processing and filing all the paperwork involved in a lease. Some states put a cap on how much they can charge for this, others don’t. The fee isn’t going to go away, but we recommend negotiating it down as low as possible.
- Your trade-in – If you’re trading in a vehicle to apply toward the lease, you can negotiate how much you get for your trade-in. This is called a cap cost reduction, which is essentially a down payment on a lease, but it only serves to prepay the lease in order to lower your monthly payment.
- Your money factor – The money factor for a lease is comparable to the interest rate on an auto loan, and though you may not be able to get it any lower, especially with poor credit, it’s certainly worth giving it a try.
- Your mileage limit – All leased cars come with a mileage limit, and turning a vehicle in over mileage could cost you as much as 25 cents per mile. Know how much you drive on average so that you can get the appropriate number of miles built into your lease. You typically have to pay an additional fee for extra miles, but you can get them at a much lower cost up front.
Myth No. 3: Leases Have Outrageous Fees
While some people end up paying a number of large fees, this certainly isn’t always the case. Fees can be assessed at lease turn in if you’re over mileage, or have excessive wear and tear or damage on a leased car.
These fees can add up fast, but you don’t have to suffer them if you take the time to calculate how many miles you need at the start of your lease, and if you take good care of the vehicle.
One fee that could be assessed is an early lease termination fee if you want to get out of your lease before your term is up. If your payment is too high, or you simply don’t like the car you’re leasing, you can look into a few options that may save you from having to pay this fee and/or all of your remaining lease payments immediately.
You may be able to find someone that’s looking for a short-term lease, and have them take over the payments, or you can talk to your dealer about trading in your leased vehicle for something else.
Myth No. 4: Bad Credit Car Leasing Doesn’t Exist
Bad credit leasing does exist, but your credit situation may make it much more difficult to qualify. There are lessors that work with people with less than perfect credit, but it may be difficult to find one. Also, leasing should be thought about carefully before you decide to try it as a bad credit borrower.
Leasing isn’t always the best option in this situation because of the short-term nature of the process. If you’re trying to improve your credit score, you don’t have as much time to build a payment history as you would with an auto loan, so it may not improve as much by lease-end.
Also, you never own a leased car unless you choose to buy it at turn-in time, so you don’t have the benefit of any vehicle equity working for you.
The Bottom Line
As you can see, there are many car leasing myths that are purely fiction. Now that you know the facts, you can take the time to figure out if leasing is right for you. If you decide that you’re better off buying due to your credit situation, Auto Credit Express wants to assist.
We work with a coast-to-coast network of special finance dealerships that have the lending resources necessary to help bad credit borrowers get the auto loans they need. If you’re tired of driving all over town looking for a lender, let us do the searching for you.
Simply fill out our free, no-obligation car loan request form, and we’ll get the process of connecting you to a local dealer started right away!