The concept of car ownership has significantly changed during the previous years. In the past, it means going to the dealership and getting a brand new car, to be discarded after some years and replaced with a new one. Since the end of the last recession, the means of owning a car has shifted from buying to leasing, and for good reason—cost effectiveness, practical advantage, and convenience. And with the surfacing of “lease here, pay here” car lots, car leasing is seen to continue as a trend in the coming years.
If you’re someone who is looking at leasing a car, there are several things you need to know in order to ensure that you’ll get the most value out of your chosen vehicle. Below, we clarify all the jargons to help you find the best deal:
The Car’s Residual Value
Simply put, a car’s residual value pertains to its value at the end of the lease period. This is typically between 40% and 60%. If a car has a 60% residual value, this means you will be paying only the remaining 40% throughout the lease. Therefore, a high residual value means a lower monthly lease payment for you. This is beneficial during the lease, but this could be disadvantageous if you plan to purchase the car after the lease period because you’ll still be paying a high amount.
The Car’s Warranty Coverage
Brand new cars are not the only cars that must have a warranty—leased cars should have one, too. The length of a leased car’s warranty can spell the difference between always having to shoulder the repair and replacement of damaged car parts and not having to pay any fee at all. Warranty coverage may vary from one “lease here, pay here” car lot to another, but you should get one with at least an 18,000-mile warranty coverage.
The Car’s Maximum Annual Mileage
Car leasing companies often impose annual mileage limits to their cars. This is to ensure that the vehicles would still have a high resale value at the end of the lease term. The standard mileage is 12,000 miles, but not all leasing companies follow these—others have as low as 10,000 miles. It is important to ask about this, as any excess mile per year will equate to additional fee.
The Money Factor
To put this simply, money factor is what determines the interest that you will pay for your car lease. The computation to arrive at the interest rate is simple: money factor * 2400. Whatever is the result of this computation, that will be the interest rate. One important thing to remember is that this rate is negotiable—you can always appeal for lower interest.
Once you are familiar with all these things, it will be easier to find a vehicle to lease in your nearby ”lease here, pay here” car lot. Armed with complete information, you can be sure to get the best deals on cars.