Wondering if you should finance or lease your next vehicle? You’re familiar with purchase auto financing, but like most folks you’re not certain what is an auto lease.
You’re at the dealership searching for your next great car. You peruse through aisle after aisle with no results. Finally, something beautiful and shiny catches your eye.
You ask a dealer employee if you can take the beauty for a test drive, and they oblige. Suddenly, you’re cruising down the freeway testing the limits of what you hope will be your brand new car.
Everything about it feels great! The turning is sharp, the wheels are slick, and it’s got a great new speaker system. You know this is the car for you. Now all you have to do is seal the deal.
As you pull into the dealership, the dealer turns to you. “So,” they say “Do you want to lease or own?”
Uh-oh. You’ve probably heard about the advantages to both owning and leasing. Still, it can be confusing.
Before you make a costly mistake, it’s time for a bit of research. Keep reading to answer the question: what is an auto lease?
What is an Auto Lease?
Don’t be embarrassed if you’re not entirely sure how to answer the question, “What is an auto lease?”
Even if you’ve heard the term before, few understand the ins-and-outs of the document. Sometimes, even experienced car buyers get a bit confused.
When push comes to shove, leasing a car is just another way of financing it. While some people are fortunate enough to be able to afford to pay for the car in its entirety, chances are you can only pay for a fraction at the moment.
No worries, this is why leases exist! They’re for people who need a new vehicle but can’t quite afford to make a large payment.
Your lease will state that you agree to pay a set amount of money for a pre-determined amount of time.
Every dealership deals with leases differently. This means that even if you find a car that you instantly fall in love with, be sure to shop around for the best deal.
Watch This Short Video Explaining The Difference Between Leasing and Buying A Car
What Are The Elements Of An Auto Lease
Now that you can answer the most basic question, “what is an auto lease,” let’s delve into the details.
As the dealer sits you down and puts the papers in front of you, you may feel a bit overwhelmed by all the legal language.
Here are a few things you can expect to see on your leasing paperwork.
The first (and probably most important detail) is the down payment. As you probably expect, this is the amount of money that you’re expected to put down for the vehicle today.
Depending on the details of your lease, there may be extra fees involved. While leasing is a great choice for many, it isn’t without its drawbacks. The fees you’ll likely have to pay are the biggest ones.
You may have to pay fees for everything. This includes damage — accidental or negligent — or even if you drive too far in a given year.
Yes, some dealerships have a mileage limit in case the car needs to be repossessed. Accordingly, you’re going to want to go over the document with a fine-toothed comb before signing anything.
Then there are the monthly fees. This, as you know, is what you’ll be charged every month to keep your gorgeous new car.
While there may be all sorts of intimidating legal language, don’t let it get you down. Your lease is basically just a set amount of cash you’ll pay for your car every month, including any fees.
If you feel uncomfortable signing anything, talk to your dealer and have them walk through the document. Remember, it’s your choice, not theirs! You’re in control here.
What are the Benefits of an Auto Lease?
As you’ve surmised, the largest benefit is that you’re getting to drive off in a new car for a small amount of money.
But there are also a few advantages that few stop to consider.
For instance, signing a car lease is a great way to build credit. Most people could stand to have a higher credit score. An auto lease shows that you’re responsible with money and can be trusted to make payments on time.
Then there’s the issue of the down payment. Chances are you won’t have to pay nearly as much as you would if you were getting a loan (i.e. buying it).
Speaking of which, just because you’re leasing instead of buying doesn’t mean you have to miss out on savings. You’re still welcome, if not encouraged, to haggle the price of the lease. That’s why it’s so important to understand what is an auto lease before you start the negotiation process.
Be diligent with your dealer. Ask if there are any ways he or she can lower the price so you can make the payment today. The leverage is still in your hands here.
Of course, if you need a new car today, your power is a little less than preferable. But leasing a car is a lot like playing poker. This means that it’s all about how you play your hand.
What are the Disadvantages of an Auto Lease?
Now, let’s get to the not-so-good stuff.
While there are tons of great reasons to sign a car lease, there are also a few things you need to know beforehand.
You’ll probably end up paying more for your vehicle than if you bought it outright by a few thousand dollars.
Some of the fees you’re going to have to pay are outright ridiculous, as well. We’ve already gone over the preposterous mileage fees, but some dealerships charge some of the following:
- Acquisition fees: what it cost them to get the car itself.
- Tire fees: yes, you may literally have to pay just for having a new set of tires.
- Tune-up fees: some dealerships won’t let you get a tune-up at anywhere but their dealership. Be sure to ask about this and watch for tricky language in your auto lease.
Always ask about what constitutes “damage” to a vehicle. Remember, car dealerships are businesses after all. They exist to make a profit, even if it means your misfortune.
If you can’t prove that scratch was there already, you’re going to get charged an arm and a leg for it.
Understanding Your Finances
So you know what is an auto lease, but only you can determine whether or not it’s right for you.
Remember to be smart about reading the lease itself and always haggle with the dealer for the best deals. There may be bonus offers they’re not telling you about.
If you have any questions or tips about buying or leasing a vehicle, be sure to comment below! And don’t forget, you can sign up for our newsletter to stay up to date on the best finance tips.
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