Car Leasing – What It Is And What To Watch Out For
Car leasing has been hugely popular in the USA for many years and, in fact people, very rarely own their own new cars there.
It seems over here people have taken a lot longer to get in on the act but over the last few years leasing has really started to gain popularity. For many people the idea of having a brand new car is very tempting indeed but there are some things to consider and the reality of leasing is often not quite what people had in mind at the start.
What Is Leasing?
The best way to think about car leasing is in the context of renting a house. You pay an agreed monthly fee to the leasing company and at the end of a given period you simply give the keys back. As the agreement comes to an end, just like a house, you have to make sure the damage is minimal and down to wear and tear to avoid facing extra costs for repair.
The residual value of the car is worked out based on your proposed usage and the car being in good condition at the end of the lease. This value is then used to predict the monthly costs so the dealer ends up with a car they can sell at a profit.
One of the main differences between leasing a car and renting a house is that you often get the option to buy the car at the end of the period for the market value; not something a landlord is likely to offer very often!
Why Is Leasing Good?
There are a few reasons leasing can be the right choice, not least the fact that you can be driving a shiny new car every couple of years without any of the hassle of selling it when you want to change.
For a lot of people they simply get into a routine and get a new car on a regular basis and simply give the old one back. Of course, as the cars are new they rarely need a lot of repairs and they should be well within their warranty period. In some cases you can opt to pay extra monthly payments to cover maintenance and remove even the most basic servicing bills at the point of use.
Bad Points of Car Leasing
There are, as with most things, some down sides to car leasing of course. One of the main good points is often a reason for other people to avoid leasing and that is the fact you do not own the car at any point.
Some people really fall in love with their car and giving it up at the end of the lease with no budget to buy can be annoying. There are also mileage limits in place and going over this agreed amount can be costly.
What to Watch out for When Choosing A lease Deal
There are pitfalls in car leasing as there are in many financial deals; especially where credit and lending is involved. Below are some of the more common things to watch out for so you can avoid being stuck with a poor deal for the entire lease period.
Low Monthly Payments Can Be Too Good To Be True
When hunting for a good deal it is only natural to look for low monthly payments, however, there really is no such thing as a free lunch and low monthly payments are likely to mean a much higher deposit upfront.
This deposit should amount to around 3 monthly payments but with some deals the monthly payments are so small the dealer has to charge a massive initial payment to balance it all out. This can work out OK if you happen to have the cash but take some time to do the maths and make sure you are not going to end up paying more overall.
Most lease agreements are over 2-3 years but you may find some that run much longer, perhaps up to 60 months. These can seem a way of getting a better car and keeping monthly costs down but in some cases the agreement will outlive the manufacturer’s warranty and this can lead to all sorts of issues.
As well as longer agreements you may find agreement lengths that do not fit into years; these can be a clear indication the lease is set up to over run the warranty and leave the car unprotected at the end and thus reduce the residual value.
More importantly having a lease car with no warranty means you will be liable for all repair and maintenance costs. These costs can be considerable for higher end brands and especially so for people who have always had newer cars. Look at the warranty length alongside the lease agreement and make sure you are covered for the entire duration.
Different Model Variants Can Mean Different Quotes
During the process of shopping around a lot of people will simply search for the car by model. However, for most models, there are a substantial number of variants on the market offering different trim levels, performance, engine options and more.
It is these variants that can lead to what seem like better deals but leave you saddled with a worse car. The key is to research the full range of variants for each model and know your chosen car inside and out. It would be no fun to end up paying just a tiny bit less and have a far slower or far lower spec car for 3 years.
There Is No Such Thing As Unlimited Mileage
As discussed, all lease agreements state a mileage limit that you think you will stay under. Going over these limits can cost a considerable amount extra at the end of the agreement. There are some offers, however, that claim unlimited mileage only to have some kind of small print with a threshold in place after all.
The deal may seem an obvious choice but you could end up being saddled with a huge additional payment when the lease ends because you didn’t see the small print. Be honest about your mileage and you should get a good deal before and after.
Leasing cars may well be the future for 1000s of people who have always owned used cars in the UK and the advantages certainly outweigh the issues. But, as with everything financial, do your homework and don’t be drawn in by “too good to be true” deals.
As with all cars in warranty make sure you keep up with the servicing schedule set by the maker and adhere closely to the lease guidelines to avoid any surprise payments at the end of the agreement.
Article provided by Ade Holder, an independent motoring journalist working together with The AA Garage Guide.
Main Image Source – All Images By Claudio Núñez
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- Car Leasing – What It Is And What To Watch Out For - September 22, 2016