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As someone who leased before, I don't think I would lease again. Keep in mind that you are essentially paying the manufacturer to rent a car, and on top of that, you are paying interest on that rental and you do not own the asset at the end of your lease. It is important to understand all the fees associated with a lease including:
- Cap Cost (or capital cost which is the price of the vehicle).
- Downpayment amount (you do not want to put much cash in on a lease if at all possible, you are much better off keeping this cash in your pocket. Beware of dealers that want more than $1000 or so down. If they want $2k-4K down you really need to do your math, and you also need to watch for hidden fees here).
- Outside of the cap cost, and residual cost, and moneyfactor make sure you understand all other fees that a dealer may be applying.
- Moneyfactor. This is important. This is where the interest rate that you pay is factored in, and this is where a dealer can get you based on a number of factors. It is not uncommon for dealers to charge you 10-14% interest as they legally do not have to disclose this. Make sure you know what you are paying in interest and know your credit score before you start negotiating. Your credit score directly relates to the moneyfactor. The stronger your credit, the better off you are. If you have poor credit leasing is not a good idea typically.
- Gap insurance. This is also important. Just because you are leasing a car does not mean you are not responsible for it in the case of an accident. You, not the dealer or bank, is responsible for paying off the car in the event of an accident. For instance, if you get in an accident and you still owe $15000 on the car and the insurance company will only payout $12000, you are responsible for the other $3k. Which means you will need gap insurance for your lease which is an additional expense.
The only time I ever recommend family or friends lease if if they are the type of person that will always get a new car every 3 years and can actually afford to lease. If you cannot afford to buy the the car, I would never recommend leasing it. it You are most likely in over your head if the only way you can make a monthly payment on a car is to lease vs buy.
So if you lease, remember to know:
- Cap Cost (including the downpayment and all fees)
- Residual Value
- Moneyfactor
- Gap insurance
- Mileage and overage cost. I have known people that leased cars thinking they would drive 10-12K miles a year only to get a new job and drive more. It happens.
Me? I hated not owning the car at the end of my 4 year lease. I hated that I had to worry about my mileage and wear and tear. I have started following Dave Ramsey as much as possible and now either pay cash for my cars or buy them and pay them off within 3 years leveraging money from my previous car and money I saved by not paying all that interest and payments. It is hard to do... But it will save you tons of money over time and allow you to invest the money you would be paying to a bank back into your own pocket.
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