4 Myths About Leasing A New Car
Many people don’t ever consider leasing a car, even when it would actually make financial sense for them to do so. This is primarily because of the negative press car leasing has endured over the years. However, some of the bad press surrounding car leasing is unwarranted. Here are four myths about car leasing that might cause you to change your mind the next time you are in the market for a new car.
You Can’t Negotiate On The Price Of The Car
False. Many prospective lessees assume that because they are not buying the car, they cannot negotiate on the price of the car. This is a mistake. In fact, the total amount of the monthly lease payment will depend in part on the sale price of the car. Therefore, if you are considering a car lease, you should fight hard to get the lowest sale price on the leased vehicle.
It is important to note that the car leasing business has its own terminology for the value of a leased car. Instead of calling the price of the leased vehicle the “sale price”, car dealerships call it the capitalized cost. You will want to do your best to get the capitalized cost as low as possible. Use the invoice price of the car as a good benchmark. Getting close to or below the invoice price should be your goal for the capitalized cost.
Don’t focus on directly lowering the monthly lease payment. Dealers have sneaky ways of lowering monthly payments without lowering the total amount you will have to pay over the life of the lease. Instead, focus on reducing the capitalized cost value. This will lower your monthly lease payment and lower the total amount you will pay for the lease.
Leasing Is More Expensive Than Buying
Maybe. If you buy a new car with cash or you plan on driving the purchased car long after your car loan is paid off, then buying a car will probably be cheaper than leasing. However, if you want to drive a new car every few years or you don’t expect to keep a car until it is fully paid off, a lease might be the cheaper option.
Consider this example. Let’s say that you buy a new car by taking out a five year auto loan. After two years, you decide that you want a new car and you want it now. Unless you can pay off the balance of your five year loan, you will likely have to do a trade in with the dealer that you buy the new car from. If the value of your current car is worth less than the remaining balance of your five year loan, you will have to increase the size of your new car loan to pay off the remaining balance on your old car loan after the trade in. Even if your car is worth more than the value of your loan, don’t assume that the dealer will give you the full value of your car for the trade in.
If you had leased the original car for two years instead of buying it, you could have turned in your old car and leased the new car that you wanted without having to deal with a trade in. As long as you didn’t turn in the leased car early or go way over your mileage limits, there is a decent chance that you would have saved money by leasing.
Breaking A Lease Will Crush You Financially
If you want to get out of your lease early, the dealer will likely make you pay additional lease payments and will charge you an enormous lease cancelation fee. However, you can avoid these fees by getting someone to take over your lease. There are companies, such as Swapalease, that specialize in connecting lease holders with people looking to take over leases. Just make sure that there are no clauses in your lease contract that prohibit or penalize lease transfers.
If You Drive A Lot, A Lease Isn’t For You
It is true that most leases have maximum annual mile limits that are relatively ungenerous. For example, it is not unusual to be restricted to 10,000 miles per year before charges for extra miles kick in. This can be problematic if you have a long commute to work every day. However, there are two things to note here. First, you can likely negotiate a higher annual mile limit for an increased monthly lease payment. Second, it makes sense that you should pay more for putting additional miles on the car. For example, if you wanted to sell your used car, all things equal, you would receive a higher price for having fewer miles on the car. Therefore, it is not necessarily unreasonable for the dealer to charge more for extra miles. If you can negotiate a higher annual mileage limit, it still may be a better move to lease.
Keep these myths in mind the next time you are on the market for a new car. You might be surprised to find out that a lease is the best financial move you can make.