Leasing a car can seem attractive: the monthly payments are less, so you may be able to drive a better car than you could normally afford. If you like driving new cars, you can just turn it in every few years. And if you really like the car, there is that option to buy.
But there are also plenty of hidden costs that may creep out and bite you when you least expect it. Here are the ways that leases can wind up costing you a lot more than you may expect.
The Capitalized Cost – Leasing a car is actually fairly complex, but it can be boiled down to three parts: the capitalized cost, the residual value, and the money factor. Let’s start with the capitalized cost.
This is the actual value of the car at that moment, when it rolls off the lot. And, just like the price of a new car, it’s negotiable. And not only can you negotiate, you should aim to get the lowest price.
Here’s why: your lease payment is made of three parts, the depreciation fee, the finance fee, and the money factor. So, the lower your capitalized cost, the lower all parts of your lease payment will be. Push hard, and make sure you and the dealer nail down a specific number…and that number is, at the highest, the MSRP.
The Interest Rate – Generally part of the money factor, this is also negotiable, and it shouldn’t be any higher than the average interest rate of a car loan. There’s no reason it needs to be higher than that; after all, it’s going to be financed the same way as a car loan, and in fact the conditions are better for the dealer.
The Residual – This is non-negotiable; the dealer determines the residual for each model ahead of time. But what you can do is select a car that will hold its value, and comparison shop between different residuals. Remember, the higher the residual, the lower the overall payment.
Sales Tax – Yep, it’s technically a purchase, even though you’re really just renting the vehicle. So that will be added into your lease payment: make sure you know what you’re getting into, because your dealer isn’t required to disclose it.
Maintenance – Leasing a car is a lot like renting an apartment, but it’s different in one crucial respect; if something breaks in your lease, you’ll be expected to pay for it. It might even be in your contract.
Auto Insurance – Depending on the terms of your lease, you may be required to get more expensive car insurance. Ask your dealer about the insurance requirements. Make sure it’s very clear, so you know what you’re going to be paying.
Matching Tires – Believe it or not, all four tires have to match on a leased car when you return it. And yes, you’ll have to pay for it.
Mileage – Leases have limits on how much you can drive the car, and those fees add up fast.
Turn-In Fee – Yes, you have to pay them to take the car they technically own back from you.
and Finally, State Fees – Depending on the state, all sorts of fees may be lurking just below the surface. For example, you might have to pay a fee to switch your plates to the leased vehicle. Again, the dealer is under no obligation to inform you of these fees, so before leasing, call your state DMV and find out what fees you can expect to pay.