Getting your hands on a car is now even more accessible than ever. With technology, you’ve got access to numerous vehicles, all within the click of a finger. You’ve got more options, too. It’s as if car companies and car dealers want you to have your own car right away. Some might choose cars depending on their lifestyle, while others have budgetary constraints in mind. Whatever you desire, there are now numerous options that will work to your advantage.
One of these is car leasing. Leasing applies not only to real estate, homes, and apartments, but even to cars as well. In recent times, car leasing has become a more popular option, especially for the younger generation. This is mainly because monthly payments are lower, and you don’t have to be stuck with a car that you may no longer like in a few years. In essence, a car lease works in the same manner as that of apartment leases.
But before you get too excited, remember that whatever major financial decision you make has to be backed up with proper research. As promising as it may seem, it’s still to your advantage to know all the basics about car leasing. This includes the pros and cons. This article is here to help you out by presenting you with all the basics you have to learn about car leases. Continue reading below to find out more.
The Documents Needed To Apply For A Car Lease
The application of a car lease isn’t one that you can complete immediately. There are still contracts that will have to be prepared. It’s almost close to the same process as buying a car. To speed up and ease the preparation for a car lease, you have to do your part as well in the preparation and submission of the proper documents.
Some of these documents include:
- Your valid driver’s license
- Your social security number
- Documents that prove your financial capacity to pay for the car
- Other documents, such as a valid passport and visa for foreign nationals
The documentary requirements may differ from one state or another. It can also vary based on the specific needs of the car company. You should review this matter with the car company as well.
The Advantages Of Car Leasing
Car leasing is popular nowadays because of the advantages that it carries. These advantages include:
- Lesser Financial Burden: This is one of the common reasons why individuals choose to go for a car lease. In comparison with buying a car on an installment basis, deciding to lease a car will still end up being the cheaper option. First, the monthly payments are generally lower. Second, your financial responsibility is also quicker. You’re only paying for the car at the time that you need it and at the time you’re using it. When you return it to the dealer at any time, you’ll no longer have to pay for its use. Hence, it differs from a car installment purchase wherein you’ll still be paying for the car even when you no longer like to use it.
- Little To No Down Payment Required: Concerning the point mentioned above, car leasing is an attractive option for those who don’t have enough cash to pay for a down payment. With a car lease, there’s often very little to no down payment required.
- Lesser Repair Costs: One of the most expensive aspects of owning a car involves the repairs that have to be done. If your car breaks down, you’re going to have to pay to have it fixed. With car leasing, the cost of repairs is often lesser. The warranty over the car and on the lease contract that you sign usually cover the repairs that need to be done. But do read the fine print about warranty limits and conditions.
- Lower Sales Tax: When you buy a car, there are taxes that you have to pay for, and one of these is the sales tax. When you purchase a brand-new car, the sales tax is often quite high. You’ve got to pay for the tax percentage that’s equivalent to the value of your vehicle. In car leasing, you still pay for the tax, but the amount is lower. You only have to pay for the value of the tax, which is based on the equivalent percentage of the portion of the car you’re paying for as you use it.
- Ease of Changing Cars. Because you’re leasing the vehicle, it’s easier for you to switch to another make and model whenever you want to. When you return the car, you can lease another one again. You don’t have to be tied with years of installment payments like you would with buying a car.
The Disadvantages Of Car Leasing
No contract is ever without any disadvantages. When it comes to car leasing, here are some of its drawbacks:
- There’s A Limit On The Distance You Can Drive The Car Annually: This is one of the factors that also sets apart a car lease from all other car contracts. When you’re buying a car on an installment basis, you have the freedom to accumulate whatever distance every year. After all, the car is yours. But with car leasing, there’s a limit. In most cases, the limit is pegged at 20,000 kilometers a year. While this may seem like a long enough distance for you, in some cases, it isn’t. You’ll be surprised to see how fast range tends to accumulate, especially if you drive long distances every day. More so if you’re the type to enjoy long road trips. Should you go beyond this pegged limit, you’ll have to pay the penalty.
- The Degree Of Care Required Is Higher. Because you’re leasing (or renting), the car isn’t yours. You’ll have to return it at the end of the contract. Hence, it’s but fitting that the degree of care that’s required is higher. You have to follow the maintenance requirements strictly, or else you’ll be charged with a penalty. You’ll also be charged more for wear and tear damage, even to the tiniest dot.
- The Car Will Never Be Yours. While the expenses that you’re paying for are naturally cheaper, the caveat is the fact that the car isn’t and will never be yours. An expense, no matter how cheap, does add up. And sometimes, it’s better to pay for assets that you own rather than spend years shelling out hard-earned money for an asset that you will never get to own. Again, it boils down to a matter of preference, whether you wish to be the owner of a car, or if renting will suffice for you.
The Key Terms In A Lease Contract
When you sign a car lease contract, this usually runs for about two to four years. Often the choice is up to you as well. This timeframe may even seem long. But in comparison with other options of car ownership, this is a more favorable timeframe. In understanding the terms and conditions of a lease contract, however, you have to first be familiar with the keywords, lest you might feel even more confused and lost. As is the case with any contract, a good understanding of the terms will also mean that you’re making a better and more informed decision.
With a car lease, you’ll have to abide by the number of years stipulated in the contract, and you can’t end your lease earlier than intended as there are penalties that you may have to pay for. However, you also have the option to transfer your lease to a third party who’s more than willing to take over it. This process works like selling your current lease to another party. Learn more about how to handle a car lease transfer without hurting your credit score here.
Some of the key terms include:
- Financing Options: This refers to how you plan on paying for the lease of your car. While others can afford to pay for it through their savings account and their monthly salaries, there might be some who prefer other financing options. This still includes taking out a car loan. The financing options in leasing a car are still as numerous as that of buying a car.
- Gross Capitalized Cost: This refers to the price of the car that you see on the contract, or the amount that you’ll be paying for. This price is negotiable.
- Monthly Lease Payment: This refers to the amount that you’ll be paying for every month.
- Adjusted Capitalized Cost: This refers to the price of the car that is adjusted based on factors like negotiations, trade-in, and down payment.
- Money Factor: This refers to the interest that you’ll be paying for.
- Residual Value: This refers to the value of the car when you return the vehicle to the dealer at the end of the lease. Naturally, the car dealer will not want to go home empty-handed.
- Depreciation: This refers to the value of the car that’s adjusted based on the months and the distance that you’ve been driving it.
To learn more about car lease transfers, you can also check out this video:
The Best Time To Lease A Car
The economy is moving around in a cycle. Naturally, there are times in the year when it’s better to purchase other goods over other products. There are also these bad or negative times in the business year. When it comes to car leasing, the best time for you to lease a car is at the end of every year. It’s at this time that car dealers are very concerned about the remaining inventory that they have. Car dealers want to close or clear up the inventory so that they can start the year with brand-new stocks of newer models and newer releases.
It’s at the end of the year that car dealers are also very generous with their deals. They’re more willing to give clients better deals and discounts so that they can dispose of the remaining vehicles that they have in stock.
Techniques To Make The Most Out Of Your Lease Contract
Now that you know the details about car lease contracts, you may also be left wondering: are there ways to maximize the outcome of a lease contract? Yes, there are. Some of these techniques include:
- Pick The Right Car: Think of your car lease process as similar to that of buying a car. For you to be able to make the most out of your lease contract, you’ll also have to pick the right vehicle. Of course, the “right” car is subjective. This is usually dependent on factors such as your preferences, needs, and budget.
- Pay A Down Payment: One of the advantages of a car lease is that, in some cases, no down payment is required. But even if your dealer gives you this kind of option, it’s still best to put in some money for your down payment. This is going to lessen the monthly lease payments that you’ll have to shell out.
- Read The Contract Thoroughly: Make it a point to read the car lease documents at least two to three times. Don’t rush signing the contract when there are areas or conditions you’re unsure of. If you’ve got questions, ask the car dealer. Or better yet, have an expert along with you or a lawyer friend to help you interpret clauses that may be difficult for you to comprehend.
A car lease is a very attractive choice, especially for young professionals. Many now see cars like computers and other gadgets: it’s not something that they wish to hold on to for a very long time. With newer upgrades coming in regularly, there’s also a tendency to want to upgrade the car that you have. If you’re into this kind of lifestyle, then car leasing is going to appeal to you. On the other side of the spectrum, though, you might want to choose a car lease because of the lower financial responsibility that it carries. Whatever your reason, remember that a car lease isn’t for everybody. Now that you’re well informed about all you need to know pertaining to car leases, it’s up to you to choose whether or not you’re going to push through with it, or go for the more traditional forms of car ownership instead.