Leasing used cars explained

Leasing a used vehicle can be an attractive deal in many ways, no least getting you into that luxury model or SUV, for lower monthly payments than a brand new one. Be prepared, however, to do some more homework to dissect a good deal.

As with new car-leasing, your price research should focus on the key figures that are the initial market value and the estimated residual value of the used car. This is harder to predict since there is no factory-set sticker price on used cars, and the residual percentage is very much pegged to a subjective current retail value. Use different sources to get a rough idea of the value of the used car: your local dealerships, internet car-evaluating tools, such as Edmunds.com and Cars.com, to name but a few.
Another way to pin down a good estimate is to compare the lease on your given car to a lease on a new-car with the same make and model. This should give you a better picture of the difference between leasing new and going for used. Just like leasing a new car, used vehicle leasing is more attractive when residual values depreciate the least. You stand a better chance of finding a bargain in the high-end, luxury vehicles that keep their values better as used cars.

Next, you need to check the initial mileage and the overall vehicle condition. The maximum mileage on a used car should be no more than 12,000 miles a year. A 3-years old car with 50,000 miles on the clock is very unlikely to make a good used-vehicle lease. Check for signs of excessive use, like worn seat fabric, worn pedal pads and dirty engine, which might indicate that the odometer has been rolled back. If the car is not certified, you need to get it thoroughly inspected. Ask your dealer for a
manufacturer-sponsored certification program or have your car certified by a qualified mechanic or inspection service.

Most used-car deals don’t come with gap coverage. This is a special type of coverage, normally offered on a new auto-lease, to cover the consumer if the leased vehicle is lost, stolen or damaged. Typically, auto-insurance policies cover only what your car is worth at the time of loss, not what you still owe on the lease. The difference could run into thousands of dollars. For peace of mind, do not enter into any used-car lease without
gap-coverage. Arrange it separately with either the lease dealer or your auto-insurance company.

Using lease calculators

Want to calculate your monthly lease payment? Consider using a lease calculator

If you are considering a car lease, then you might want to know some key figures involved in the deal: the monthly lease payments, the overall cost of the lease and how much savings can be made compared to purchasing the vehicle.

A lease calculator relieves you from the stress of having to know the complex underlying lease formulae used in calculations. You simply plug a number of figures into the calculator and hey presto! You get a detailed rundown of detailed payments, taxes and total lease costs.

Figures you need to get from your dealer about a specific lease you’re interested in include: capitalized cost, estimated residual value at the end of the lease, the number of months in your lease and the money factor.
Make assumptions and change some of the figures to see how it affects your lease payments. For instance, residual value is an “estimated” value of what the vehicle will be worth at the end of the lease. You can input differentestimates to cover different scenarios and assumptions.

As a final note of caution, bear in mind that lease calculators only do calculations and check the accuracy of abstract mathematical formulae. They do not tell you whether a lease is good or bad.

How to calculate your lease payment

Understanding how to calculate your monthly lease payment makes it easier for you to make an informed decision. Yet, most of us shy away from the “complicated” math on our lease contract, leaving it up to the dealer to do the payment formula.

Actually, it’s not that difficult! Once you understand all the figures involved in calculating your monthly payments, everything else falls into place. These key figures are:

MSRP (short for Manufacturer’s Suggested Retail Price): This is the list price of the vehicle or the window sticker price.
Money Factor: This determines the interest rate on your lease. Insist on your dealer to disclose this rate before entering into a lease.
Lease Term: The number of months the dealer rents the vehicle.
Residual Value: The value of the vehicle at the end of the lease. Again, you can get this figure from the dealer.

Now, let us calculate a sample lease payment based on a vehicle with an MSRP (sticker price) value of $25,000 and a money factor of 0.0034 (this isusually quoted as 3.4%). The scheduled-lease is over 3 years and the estimated residual percentage is 55%.

The first step is to calculate the residual value of the car. You multiply the MSRP by the residual percentage:

$20,000 X .55 = $11,000.

The car will be worth $13,750 at the end of the lease, so you'll be using:

$20,000 – $11,000 = $9,000

This amount of $9,000 will be used over a 36 month lease period giving us a monthly payment of:

$9,000 / 36 = $250.

This is the first part of the monthly payment, called the monthly
depreciation charge.
The second part of the monthly payment, called the money factor payment, factors the interest charge. It is calculated by adding the MSRP figure to
the residual value and multiplying this by the money factor:

($20,000 + $11,000) * 0.0034 = $105.4

Finally, we get the approximate monthly payment by adding the two figures together:

$250 + $105.4 = $355.4

To recapitulate, the sample formula looks like this:

1- Monthly Depreciation Charge:

MSRP X Depreciation Percentage = Residual Value
MSRP – Residual Value = Depreciation over lease term
Depreciation over lease term / lease term (number of months in the lease) = monthly depreciation charge

2- Monthly factor money charge

(MSRP + Residual value) X Money factor  = money factor payment

3- Sample Monthly Payment:

depreciation charge + money factor payment = monthly payment


Keep in mind that this is a simplified calculation that does not take into account taxes, fees, rebates or any other incentives. The calculation gives you a ballpark figure or a rough idea of what your lease payments for the vehicle in question should be.

How to lease a new car?

 Whether you lease a car to get into the latest models or have better purchasing flexibility, getting a good deal is always bound to give you a lift. Use these guidelines to help you spot one:

Check incentives: be on the look-out for factory –subsidized lease deals.
Car manufacturers realise that consumers who lease vehicles from them are more likely to be repeat customers than those who simply purchase vehicles.
Through their leasing companies, they adjust the residual value and offer low financing charge. Other auto-manufacturers are also starting to give incentives on leasing, called leasing subventions. They offer these subsidies to put slow-selling models on the street, saving you even more money.

Set up a competitive: bidding environment to get the lowest price. If you already have an idea in mind of the make, model and trim level of your desired car, attempt to calculate your own lease payment before you go shopping to avoid paying through the roof. Check online comparison tools or use a lease calculator to check your lease payment based on purchase price.
This gives you greater negotiation leverage as you solicit quotes from various leasing companies.

Make sure you know all the fees involved at the beginning of your lease:
you may have to pay fees for licenses, registration and title. Other fees include acquisition fees, freight fees and local or state taxes. At lease-end, you may have to pay a disposition fee and charges for extra mileage and any excess wear. Be aware that some of these fees – like acquisition and disposition fees – are negotiable.
Know your mileage needs: almost all leases limit the number of miles per year by imposing typically 10 to 20 cents per excess mile over 15,000 milesa year. If you are the kind of high-commuter who puts 40,000 miles a year
on his car, then you might end up running thousands of dollars in hefty penalties at the end of your lease. Be smart and negotiate a higher-mileagelimit or pad you excess miles at the beginning of your lease to avoid robber tax rates for excess miles.
Almost all leases limit the number of miles per year by imposing fees typically 10 to 20 cents per mile over 15,000 miles per year. If you are the kind of high-commuter who puts a lot miles on his car, then these costs can add up quickly.

Include GAP coverage: make sure your lease includes GAP coverage. This covers you in the event of the vehicle getting wrecked, stolen or totalled.
Without GAP insurance, you leave yourself wide open to thousands of dollars in leased obligations. Check if the GAP coverage is included so you don’t pay it twice.

How to avoid extra costs at the end of your lease

$250 to dispose of your vehicle, $1000 for extra miles you put on the clock and $200 to replace the light bulb and the worn tyres—lease agents constantly nickel-and-dime consumers when their lease runs out.
Here’s a rundown of what can trigger those fees, and some steps to take in self-defense.
Disposition fee: leasing companies charge you if you choose not to buy the vehicle at the end of your lease. This fee is set as compensation for the expenses of selling, or otherwise disposing of the vehicle. It typically includes administrative charges; the dealer’s cost to prepare the car for resale and any other penalties. Make sure this fee is stated clearly in thecontract and is agreeable by you before signing on the dotted line. At lease-end, you are left in no position to negotiate as the dealer can apply your refundable security deposit towards this fee.

Excess mileage charges: Almost all leasing companies will charge a premium for each mile over the agreed upon mileage stated in your contract. This penalty can be as high as 25 cents per mile and can add up quickly. To avoid the risk of running thousands of dollars in excess mileage penalties at the end of your lease, always check the “per mile” charges in your contract and be realistic about your mileage before you sign any contract.
If you think the limit is unrealistic given your commutation needs, then negotiate with the dealer to get a higher mileage or contract for additional miles.

Excess tear-and-wear charges: Another potential cost at the end of the lease is any incidental damage done to the car during the lease. This is deemed any excessive damage done to the normal tear and wear of the vehicle.
Notice the use of the terms “deemed”, “excessive” and “normal”. There is no standard formula to define what’s “excessive” and “normal” and it’s up to the leasing company to assess – or deem – the damage and determine what they are going to charge. This leaves you at the mercy of unscrupulous leasing agents who set stringent tear-and-wear standards. Make sure you read the description of these standards, understand them and agree to them.
If your leased vehicle is damaged prior to the end of the lease, you may find it cheaper to repair the damage yourself than pay the excessive charges of the leasing agent. In the event of a dispute over the charges at the end of your lease, get an independent third party to do a professional appraisal detailing the amount required to repair any damaged parts or the amount by which tear-and-wear reduces the value of the vehicle.

Should you Buy or Lease?

It’s the classic dilemma that faces every auto-consumer out there: Pay cash upfront or forego the ownership and pay monthly settlements instead? Buy or lease for a new set of wheels?

As is the case with every other common dilemma, there is no slam-dunk answer. Each option has its own benefits and drawbacks, and it all depends on a set of financial and personal considerations.

First, your finances. Affordability is clearly key, and you need to ask the question of how stable is your job and how healthy is your general financial situation. The short-term monthly-cost of leasing is 

significantly lower than the monthly payments when buying: you only pay for “the portion” of the vehicle’s cost that you use up during the time you  drive it. 

If you have a lot of cash upfront, then you can opt to pay the down payment, sales taxes - in cash or rolled into a loan - and the interest rate determined by your loan company. Buying effectively gives you 

ownership of the car and that feeling of “free driving” that goes on providing transportation.

If, say, you want to get into luxury models but can’t afford the upfront cash of purchasing the vehicle than you’re a good candidate for leasing. 

Unlike buying, it gives you the option of not having to fork out the down payment upfront, leaving you to pay a lower money factor that is generally similar to the interest rate on a financing loan. However, these benefits have a price: terminating a lease early or defaulting on your monthly lease payments will result in stiff financial penalties and can ruin your credit. 

You need to make sure you carve out the monthly lease payment in your budget for the foreseeable future, at least for the duration of the lease.    

Besides the financial aspect, making a buy or lease decision depends on your own particular lifestyle choices and preferences. Think about what the car means to you: are you the sort of person to bond with the car or would you rather have the excitement of something new?  If you want to drive a 

car for more than fives years, negotiate carefully and buy the car you like. If, on the other hand, you don’t like the idea of ownership and prefer to drive a new car every two to three years then you should lease. 

Next, factor your transportation needs: How many miles do you drive a year? 

How properly do you maintain your cars? If you answer is: “I drive 40,000 miles a year and I don’t really care much about my cars as I don’t mind dealing with repair bills”, then you’re probably better off buying. Leasing is based on the assumption of limited-mileage, usually no more than 12,000 to 15,000 miles a year, and wear-and-tear considerations. Unless you can keep within the prescribed mileage limits and keep the car in a good condition at the end of your lease, you might incur hefty end-of-lease 

costs.  

Main Car Leasing Scams

 Car Leasing Scams-What's Car Leasing?

Car leasing has been lauded as a more attractive alternative to buying,

offering in the process the flexibility to drive a new car for less, resulting in more reports of Car Leasing Scams.

Leasing is an option that is fraught with many pitfalls for the average customer. Leasing regulation does not require as much disclosure as buying a vehicle. This has given rise to many leasing

scams that trick the customer into believing they are into a good deal

when, in effect, all he is getting is a rough deal on the dealer’s terms.

Here we look at some of these common Car Leasing Scams and how to avoid them:

Car Leasing Scams-Artificially low interest rates

Some dealers quote a lower interest rate when in reality it’s much higher. They do this by either purposefully quoting the money factor as the interest rate or calculating the loan without amortizing some closing fees, like the security deposit, into the loan lease. Take the money factor for example: this is typically expressed as a four decimal digit, something like 0.004. Some dealers quote this as a 4% interest rate when in fact you need to multiply it by 24 to get a rough idea of the interest

rate on your loan. In this example, the interest rate is a much higher 9.6% than the “quoted” rate of 4%.

Make sure you crunch the numbers and understand the formula they use to calculate their interest rate. Look out for any fees not factored into the calculation. If you are not satisfied, do not enter into the lease agreement.

 Car Leasing scams-Terminate your lease early for a low penalty

This is one of the most famous car leasing scams there is. You ask your dealer how much you will pay

if you want to terminate your lease and he tells you: “You want to get out

early? Sure thing, you only pay an early termination fee of $300”.  What he is quoting is only the small administrative penalty of early termination, there is a much stiffer penalty called early termination fee and this runs into thousands of dollars.

Do not confuse the early termination administrative penalty with the termination fee. Read the small print carefully and know exactly how much you will get charged should you terminate your lease before its scheduled end.

Car Leasing Scams-Pay for an extended warranty you don’t need

This is another shell game to inflate the dealer’s profit at your expense.

The dealer slides an extended-warranty into the deal whilst it’s already factored into the monthly payments, or he tricks you into buying a 36-month warranty on a 24-month lease.

You do not have to pay extra money for a warranty already built into your payments or for one that goes well beyond your lease term.

They might slip an extended warranty in. Don’t be fooled, the warranty is already factored in.

Any dealer who advertises a $0 security deposit is not telling you the

whole story. A security deposit is always factored in the lease under the provision for disposition fees.

Beware out there for these Car Leasing Scams for they can grow gray hair on your head and give you a head ache too.

Well thanks for reading folks, I hope I covered some of the most important and common Car Leasing Scams out there. Have a nice day.