What You Should Know Before Leasing a Car

What You Should Know Before Leasing a Car

When you see advertisements on television encouraging you to visit a car dealership and take advantage of a new vehicle lease, it is very tempting. The payback is low, the cars are nice and it looks as though you are getting an excellent deal. Given the state of the economy, a car lease may be seen as a viable alternative to financing a car purchase. But what are some of the specific factors to consider before leasing a car?

What is a Car Lease?

A car lease can be seen as a long term rental arrangement which involves one party making monthly payments to another party to use a car for a specified amount of time. The lessee (the person who is using the car) enters into a contract with a leasing company (lessor) and at the end of the contract, the lessee has the option of returning the car to the leasing company or purchasing the car fully.

Under a car lease, the lessor retains ownership of the vehicle and there are several lease restrictions which the lessee must adhere to. One example of a restriction is that if you cancel the contract or return the car, you may have to pay a fee or all of the remaining lease payments. Another example is that you can not modify the car in any way without permission from the lessor.

Top Five Benefits of Leasing a Car

The top five benefits of leasing a care are:

1. There is zero or low initial outlay (deposit). Some leasing companies may require a security deposit on signing the contract. This fee might be refundable at the end of the contract if you return the vehicle in good condition.

2. You can afford a newer vehicle, which will require little or no maintenance.

3. With some leasing companies, when your vehicle needs servicing or any of the parts which are under warranty need repairing, the lease company is responsible for those expenses.

4. Your monthly payment might be lower than what is required for a car loan.

5. You have the option of buying the car at the end of the lease period.

Top Five Drawbacks of Leasing a Car

The top five drawbacks of leasing a car are:

1. Breaking a lease can be expensive and you may be liable for a termination fee and/ or the remaining lease payments.

2. You do not own the vehicle during the period of the lease – it belongs to the leasing company

3. You have to maintain the condition of the vehicle to the lessor’s satisfaction. Failure to satisfy this requirement might result in the loss of the vehicle.

4. You might be liable for all damages and repairs in the event of an accident, even though you have car insurance. Some lease agreements attribute all risks to the lessee, thus relieving them of all responsibilities.

5. Some leases impose mileage restrictions, which limit the amount of miles that you can drive per year. If you exceed the limit, you might have to pay an excess mileage fee.

What You Should Know Before Leasing a Car

Before you take the plunge and randomly sign a contract for your car lease, there are a few things you should look for.

1. Decide on the size and type of car that you want. For many of us, the size and type of car that we can afford, is directly related to our budget.

2. Compare lease agreements – Compare everything including the price, car features and particulars of the agreement. There is nothing wrong with shopping around to get the best deal.

3. Choose the model – Sometimes the prettiest car is not the best car. When choosing your model, consider things like gas mileage,  insurance premiums, vehicle reliability and safety features and records.

4. Check your budget and make a plan – Make sure that the deal is good for you and fits into your budget. Calculate your estimated monthly payments and any maintenance costs that you might have to pay.

5. Read the contract carefully and take note of all of the terms and conditions.

The Lease Vs. Buy Comparison

If you’re still not convinced that leasing a car is the best option for you, maybe the following example can help you to decide.

The Suzuki dealership in Barbados offers a lease agreement with an optional final balloon payment for the Suzuki Vitara. It features an automatic transmission, is four wheel drive and has a 2.4 litre engine. The lease requires a $11,500.00 down payment, a monthly payment of $1,743.34 for 60 months, and a final balloon payment of $47,400.00 for a total price of $163,500.40.

In comparison, the Toyota dealership in Barbados offers a Toyota Rav4, which is comparable to the Suzuki Vitara. It features an automatic transmission, is four wheel drive and has a 2.5 litre engine. The showroom price is listed at $170,995.00. Using a calculator from one of the finance companies in Barbados, a vehicle loan requires a down payment of $17,099.50 and a monthly payment of $3,083.75 for 60 months for a total price of $202,124.50.

Both vehicles are comparable in size and have similar specifications. However, there is a huge difference between the prices. Which vehicle would you choose and why?

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Odd Cents Team

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