Multiple leasing brokers are offering great deals that can make a huge difference in your monthly payments.
Along with the pros, there are many drawbacks like terminating the lease early can turn out to be pricey, or going over the mileage limits mentioned in the agreement you can end up paying huge bills when the lease ends. You will not be the car owner, so you will not be able to show for a thousand dollars spend paying on the auto lease terms. So, when you meet the broker at Lease a Car Direct never hesitate to ask questions!
Out of the multiple factors within a lease agreement, a few determine the value of the lease. Asking the right question can help you accurately evaluate the deal terms.
Are there lease specials?
Discounted lease specials are often offered to improve sales, which is a great way to make a substantial saving. Nevertheless, read the fine prints to detect any extra charges. The quotes will never include registration fees or sales tax.
Several leases need a heavy drive-off fee. However, remember the manufacturers offer deals by setting capitalized cost near or at the invoice price. Therefore, the residual value increases and so a low-interest rate [money factor] is offered. You gain low monthly payments, but the buyout price will be high if you desire to purchase the wheels when the lease term expires.
What is the residual value of the car?
Residual value means how much worth the car will be when the lease expires. It is a crucial component and expressed in percentage of the MSRP [Manufacturers Suggested Retail Price]. Here if the residual value is high the lease monthly payment will be low. In the car leasing program, you pay for the difference between MSRP and residual value across the lease duration. If the residual value is high the difference will be small.
For example, if you lease a car with MSRP $40,000 with 60% residual value across 3 years then at the end of the lease the car will be worth –
60% of $40,000 = $24,000
The difference – $40,000 – $24,000 = $16,000
$16,000 divide by 36 months [3 years] = $444 is the monthly payment [without interest, taxes, or fees]
If the residual value is 50% then the monthly payment will bump up to $555.
What is the money factor?
The jargon ‘money factor’ is thought to be the interest rate in the car leasing program. It looks like 0.00135. Just like the traditional interest rate, the number has to be lower. For converting the money factor into the interest rate, you need to multiply by 2.400. For example, 0.00135 x 2,400v= 3.24%.
Converting into interest rate helps to ensure that you get a proper rating suitable to your credit score.
What is the mileage allowance offered?
Sometimes the automakers offer great deals but check the mileage allowance it generally includes 8,000 or 10,000 miles annually. This mileage allowance is suitable only for those who hardly drive, but on average drivers need at least 12,000 miles/year. Lower mileage leases can get adjusted, but it can bump your monthly payment.
What about the down payment?
Even if the lease deal is a killer ask for the upfront cost. Down payments are called drive-off fees, which can be $1,000 – $3,000. The higher the upfront cost the lower the monthly payment. It is not a good idea because unlike a traditional loan if the car gets stolen or totaled, the insurance provider pays the leasing broker. The insurance company will not offer any settlement against your down payment. Your contribution would be a total waste, so look for a low or zero down payment option.