Things to be aware of when leasing a vehicle
Making the decision between buying and leasing a car is tricky. Leasing offers some excellent benefits we’ve highlighted previously in our article What are the pros and cons of leasing? But if you’ve already made your decision and leasing is the way you want to go then you’re in the right place. This article is going to run through all of the things to be aware of when leasing a vehicle so you can go into your first leasing journey with your eyes wide open. Knowledge is power so they say, so read on.
If you haven’t got your heart set on a specific make and model of vehicle you could benefit by being flexible. Periodically manufacturers will offer highly discounted lease specials to generate more interest in slow-selling models. Special offers are even available on popular models such as Mercedes and Audi. But if you’re prepared to look outside the box or waiting until a good deal comes along then you could benefit from some significant savings. Using a broker for your lease car will ensure you can shop the whole marketplace for these deals for you.
Otherwise known as Guaranteed Minimum Value. Try and get a vehicle with a high residual value. This will help you get a good deal on your lease. The residual value is a term used to describe the value of the car when the lease ends. The figure is estimated based upon similar models and historical figures about how cars devalue over time.
When you lease a car your payments cover the lost value of the car during your time using it. As an example you lease a car that’s worth £20,000 and in three years it is estimated to be worth £11,000 (residual value). Your monthly lease payments will equate to the difference £9,000 over a 36-month lease plus taxes and interest.
So a high residual value means you’re getting a better deal. The higher the residual value percentage, the lower your payments will be.
A good residual value is 55 percent and a fair one is 45 percent. Most cars residual value will fall between 45-60%.
Another big thing to be aware of when leasing a vehicle is the interest rate you can get. Combining a good interest rate with a high residual value leads to a really good lease deal. The interest rate isn’t divulged to customers leasing a car. You will just be given a monthly payment amount. So how do I know if I’m getting a good interest rate? I hear you cry! Well, the dealer converts the interest rate into a mysterious decimal number. To convert the money factor back into an interest rate, multiply it by 2,400. So if the money factor is 0.00125, multiply it by 2,400 to get 3 percent.
Your interest rate will largely be based on your credit score. However, another tactic manufacturer’s use to attract customers to the not so popular makes and models is to offer low-interest rates. If you ask your dealer what your interest rate is they will likely reply giving you a ‘Money Factor’. Convert this amount as above and check it’s the appropriate interest rate for your credit score.
Also known as drive-off fees. These additional charges can mount up. If you’ve been offered a fantastic lease deal with high residual value and low interest then you are on your way to a winner. The drive-off fee is a combination of fees and a down payment. When leasing a car you must pay a down payment and the more you pay up front, the lower the monthly lease payments will be.
If you’re into negotiating you might have some success asking for a reduction in fees. You won’t be able to negotiate some fees such as acquisition and disposition feed. But a security deposit could possibly be waived. It may be a struggle and feel a bit cringe when the rest of the deal is looking positive, but it’s worth asking the question. Ask your dealer to explain what each fee or charge covers and use the answers as leverage in your negotiations.
Another really really important entry on the list of things to be aware of when leasing a vehicle is mileage limits. The figures might well stack up but if the mileage limit is below what you need then you could end up paying more in the long run. If you go over your mileage allowance then you will be paying extra at the end of your lease term. Knowing roughly what your mileage requirements are per year will help ensure you get a lease deal which fits your requirements.
Maintenance and Repairs
Broadly speaking most repairs will be covered under the vehicle’s manufacturer’s warranty for the entire duration of your lease. That is, except for wear and tear items such as tyres, brakes and windscreen wipers. If these need repairing or replacing it will be your responsibility to finance these. The same goes for servicing and maintenance of the vehicle. As you are essentially renting the car you are required to keep the car in good condition during the course of your lease term.
You wouldn’t borrow a pair of shoes from your friend and return them covered in mud and with half a shoelace missing. I hope! Similarly, when borrowing a car you aren’t able to return it with no oil in the tank and missing 2 wheels. If you do, you’ll be liable to make some additional payments to cover the cost of bringing the car back to within it’s Guaranteed Minimum Value (as mentioned above).
What if Something Goes Wrong?
What if your circumstance changes and something goes wrong? This is something you should be aware of when leasing a vehicle. Perhaps you lose your job, get taken ill or are otherwise unable to meet your lease payments. Then what? When taking out your lease contract always check with the dealer or broker what the get out clauses are. Some will require you to pay a portion of the fee after a certain amount of time. Others will allow you to port the lease over to someone else for a minimal name change fee. But you do have to find someone else willing to take over your lease during this time. Being mindful of the what if’s and knowing what your plan is should the worst happen will mean you are fully prepared.
These are some of the main things to be aware of when leasing a vehicle. If you crack all of the above and go into your lease contract with open eyes knowing all of the information then you will have a happy lease experience. If you don’t do your research beforehand and go in without knowing all of the facts then you could find yourself with nasty surprises or hefty fees to pay at the end of your lease.