How to buy your first lease car
The decision to buy your first lease car is an exciting one. But, it can be a minefield. With so many options from finance to hire and which car to choose? Where do you start and how do you know you’re getting the best deal? Well, we’re here to help you in this step by step guide.
Is car leasing right for you?
Ensuring that leasing is right for you is the fundamental question you must ask yourself before you start your leasing journey. Think of leasing a car as a long journey. First, you must know that your destination is definitely the right place for you to go. Leasing opposed to buying comes with several advantages but there are some drawbacks. Here we’ll highlight these for you.
Advantages to leasing
- Low monthly payments. Opposed to paying finance on the car where you must clear the balance of the whole cost of the vehicle over the course of your contract. With a lease or lease finance agreement you will only be paying for the depreciation on the car while it’s in your care.
- Low down payment. This is usually 3 months lease payment up front. Although, we are seeing a trend where people put down a larger initial payment to achieve lower monthly costs.
- You can drive a better car for your budget. Because the costs are so low you can drive a better car within your budget.
- You can drive a new car every 2-4 years (depending on your contract agreement) so you benefit from always being covered by the manufacturer’s warranty and the increased economic performance of a newer car.
Disadvantages to leasing
- You don’t own the car. Although on some lease-finance agreements you are given the option to purchase the car at the end of the contract for a fixed balloon payment.
- If you exceed your pre-agreed mileage allowance you will incur a fee.
- If you return the car with excess wear and tear or damage then you will incur a fee.
Calculate your budget
Work out how much you have available to spend on a car per month, not including fuel. This will help guide you towards which cars are available to you within your budget. It’s worth noting that insurance and maintenance of the car are not included in your lease payments.
Go car hunting
Now that you have a budget in mind you can search for cars that meet your requirements and budget constraints. This article on knowing if you’re ‘ready to purchase your lease car’ can help you with how to search for your new car.
TIP: Reduce your overall costs on your lease car by choosing a vehicle that has good mpg (miles per gallon/fuel economy) and low maintenance costs. Just because you can afford the lease payments on a BMW doesn’t mean you shouldn’t consider a VW for example.
TIP: Research insurance costs to help your decision. You will be responsible for paying for the insurance on your car so ensuring this also fits within your budget is key. This article about different types of insurance and why it’s not included in your lease can help.
Be sure to take your shortlisted cars for a test drive. Pay attention to how the car makes you feel, and how it performs under some pressure. Pay close attention to the following features as these will be the make-or-break factors of a car you love to drive long-term:
- Head and legroom
- Visibility (especially blind spots)
- Engine power
Have the initial payment ready
You will need to make an initial payment on your lease vehicle. The minimum requirement is usually 3 months lease payment up-front. This is still vastly lower than purchasing a vehicle on finance. If you do have some additional funds available to increase your initial payment it will reduce your monthly expenditure. This article about initial payments can help explain more.
Getting the best deal
Firstly, a lease broker can search the whole marketplace for you. So, going to a lease broker should be a primary consideration before heading straight to the dealership. Even if you know the make of car you want to lease. If you are looking at a PCP (Personal contract purchase) or HP (hire purchase) contract then you should negotiate the final purchase price first. The lower you can secure the final price of the car, the lower your monthly payments will be.
TIP: When negotiating down the final purchase price it’s a good idea to know the invoice price the dealer paid for the car. Most dealers won’t be forthcoming with this information either, but if you can get it, it can help you to benchmark your negotiations. Now it’s of course not reasonable to expect to negotiate lower than this figure because the dealership wouldn’t be making any profit. A reasonable final purchase price should be between the invoice price and final purchase price. If you are using a broker this information won’t be available to them.
Then, negotiate your lease terms. We’ve already covered that the higher your initial payment is, the lower your monthly payments will be. Ask for all of the costs and fees up-front and use this total figure to help you with your negotiations. Understand the residual value and what this means for your monthly payments. On PCP and HP the higher the residual value the lower the monthly payments will be. The residual value of the vehicle is the value of the car after you’ve finished leasing it.
TIP: Gain all of the fees up front. Otherwise, after you’ve negotiated everything else you’ll be faced with add-on fees which could leave you feeling like the negotiations were wasted.
Read your paperwork
Take time to read over all of the paperwork and ensure you understand all of the terminology written in there. If there’s anything you don’t understand don’t be afraid to ask for clarification. This is a legal document and you will be held responsible for following through with the agreement. Only sign the document if you are in agreement with the contract.
Enjoy your new car
Take delivery of your new car and enjoy driving it. There’s nothing quite like the new car smell and taking it for the first spin. Make sure to take good care of the car and keep up your monthly repayments. These articles will be useful during your lease.