How to spot a good car lease

Leasing has been lauded as your cheapest ticket to keep up with the

industry’s hottest vehicles and trends. The jury, however, is still out

on leasing: with the industry long on hype and short on detail, it is

difficult to distinguish between a genuinely good deal and a downright

up-selling exercise.

So how do you spot a good deal?

First, you need to find out if there are any down payments on the lease. A

down payment refers to the lump sum amount that you pay upfront, either in

cash, non-cash credit or trading allowance, to reduce your monthly payment.

You should think twice before putting money down on a lease: not only are

you getting a rough deal, as you’re essentially forfeiting the general rule

of leasing: not putting any cash upfront, but the money is not recoupable

at the end of your lease. There is another big disadvantage: in the event

of your car getting damaged or stolen, you insurance and the gap cost will

not cover the loss.

Mileage Limit

Most leasing companies allow you a limit of 45,000 free miles over the

length of a 3-year lease. This may seem like a good deal at first sight,

but when you consider it only comes to 15,000 miles over a 12 month period

it’s not difficult to foresee why it might be difficult to stay within this

limit. Even people working from home have little trouble putting 15,000

miles on their cars.

If you exceed the mileage limit, the penalty for each excess mile can be as

high as 20 cents. This can add up quickly over the length of your lease: an

additional 4,000 miles a year over the length of a 3-years lease contract,

will end up costing you an extra $2,400 in excess mileage charges!

Be realistic about your mileage needs, especially if you have to regularly

commute over long-distances, before you sign the contract. Consider padding

the miles that you expect to use since it is less expensive to contract for

the extra before you sign than it is to pay the extra charges at end of

your lease.

Sales Tax

Sales tax is usually capitalized and added to the monthly payments.

However, some dealers choose not to include it in their calculations to

drive the advertised lease payments even lower. What they do instead is

state in the small print that the monthly payment excludes “sales tax”.

Make sure you carefully read the fine print for any extra, hidden costs not

included in the advertised monthly payment. Unscrupulous fees that

typically slip through the cracks include sales tax, registration and title

Buy a car at the end of your lease

You’ve come to the end of your lease and you like you car enough you want

to keep it in the driveway. Just like buying a used car, there is some

research to be done to nail a good deal.

First, you need to know the cost of buying out your lease. Read the fine

print of your contract and look for the “purchase option price”. This

price is set by the leasing company and usually comprises the residual

value of the car at the end of the lease plus a purchase-option fee

ranging from $300 to $500. When you signed on the dotted line, your

monthly payments were calculated as the difference between the vehicle’s

sticker price and its estimated value at the end of the lease, plus a

monthly financing fee. This estimated price of the car value at the end

of the lease is what is termed in leasing jargon “residual value”. It is

the expected depreciation – or loss in value – of the vehicle over the

scheduled-lease period. For example, a car with a sticker price of

$40,000 and a 50% residual percentage will have an estimated $20,000

value at lease end.

Now that you know the cost of buying out your lease, you need to determine

the actual value, also termed “market value”, of your vehicle. So, how

much does your car retail for in the market? To pin down a good, solid

estimate you need to do some pricing research. Check the price of the

vehicle, with similar mileage and condition, with different dealers. Use

online pricing websites, such as Cars.com, Edmunds.com and Kelly Blue Book

for detailed pricing information. Gleaning pricing information from various

sources should give you a fair estimate of your vehicle’s retail value.

All you have to do now is compare the two amounts. If the residual value is

lower than the actual retail value, than you’re into a winner.

Unfortunately, there is a good chance a car coming off a lease is a little

on the high side.

Don’t despair though. Leasing companies know as much that residual values

on their vehicles are greater than their market value and as such are

always on the look out for offers. You can knock down on the price of your

leased vehicle with some smooth negotiating tactics. Put forward a price

that is below your actual target and negotiate hard until you wind up near

How to spot a good car lease

Leasing has been lauded as your cheapest ticket to keep up with the

industry’s hottest vehicles and trends. The jury, however, is still out

on leasing: with the industry long on hype and short on detail, it is

difficult to distinguish between a genuinely good deal and a downright

up-selling exercise.

So how do you spot a good deal?

First, you need to find out if there are any down payments on the lease. A

down payment refers to the lump sum amount that you pay upfront, either in

cash, non-cash credit or trading allowance, to reduce your monthly payment.

You should think twice before putting money down on a lease: not only are

you getting a rough deal, as you’re essentially forfeiting the general rule

of leasing: not putting any cash upfront, but the money is not recoupable

at the end of your lease. There is another big disadvantage: in the event

of your car getting damaged or stolen, you insurance and the gap cost will

not cover the loss.

Mileage Limit

Most leasing companies allow you a limit of 45,000 free miles over the

length of a 3-year lease. This may seem like a good deal at first sight,

but when you consider it only comes to 15,000 miles over a 12 month period

it’s not difficult to foresee why it might be difficult to stay within this

limit. Even people working from home have little trouble putting 15,000

miles on their cars.

If you exceed the mileage limit, the penalty for each excess mile can be as

high as 20 cents. This can add up quickly over the length of your lease: an

additional 4,000 miles a year over the length of a 3-years lease contract,

will end up costing you an extra $2,400 in excess mileage charges!

Be realistic about your mileage needs, especially if you have to regularly

commute over long-distances, before you sign the contract. Consider padding

the miles that you expect to use since it is less expensive to contract for

the extra before you sign than it is to pay the extra charges at end of

your lease.

Sales Tax

Sales tax is usually capitalized and added to the monthly payments.

However, some dealers choose not to include it in their calculations to

drive the advertised lease payments even lower. What they do instead is

state in the small print that the monthly payment excludes “sales tax”.

Make sure you carefully read the fine print for any extra, hidden costs not

included in the advertised monthly payment. Unscrupulous fees that

typically slip through the cracks include sales tax, registration and title

Buy a car at the end of your lease

You’ve come to the end of your lease and you like you car enough you want

to keep it in the driveway. Just like buying a used car, there is some

research to be done to nail a good deal.

First, you need to know the cost of buying out your lease. Read the fine

print of your contract and look for the “purchase option price”. This

price is set by the leasing company and usually comprises the residual

value of the car at the end of the lease plus a purchase-option fee

ranging from $300 to $500. When you signed on the dotted line, your

monthly payments were calculated as the difference between the vehicle’s

sticker price and its estimated value at the end of the lease, plus a

monthly financing fee. This estimated price of the car value at the end

of the lease is what is termed in leasing jargon “residual value”. It is

the expected depreciation – or loss in value – of the vehicle over the

scheduled-lease period. For example, a car with a sticker price of

$40,000 and a 50% residual percentage will have an estimated $20,000

value at lease end.

Now that you know the cost of buying out your lease, you need to determine

the actual value, also termed “market value”, of your vehicle. So, how

much does your car retail for in the market? To pin down a good, solid

estimate you need to do some pricing research. Check the price of the

vehicle, with similar mileage and condition, with different dealers. Use

online pricing websites, such as Cars.com, Edmunds.com and Kelly Blue Book

for detailed pricing information. Gleaning pricing information from various

sources should give you a fair estimate of your vehicle’s retail value.

All you have to do now is compare the two amounts. If the residual value is

lower than the actual retail value, than you’re into a winner.

Unfortunately, there is a good chance a car coming off a lease is a little

on the high side.

Don’t despair though. Leasing companies know as much that residual values

on their vehicles are greater than their market value and as such are

always on the look out for offers. You can knock down on the price of your

leased vehicle with some smooth negotiating tactics. Put forward a price

that is below your actual target and negotiate hard until you wind up near

Go green and save on your lease

Hybrid vehicles’ popularity has sharply grown from a couple of thousands

in early 2000 to close to 300, 000 by the end of 2005. The trend is

rapidly catching with the auto-leasing industry with generous tax credits

and incentives on offer if you go green.

Beginning in 2006, businesses and taxpayers who lease, or purchase, an

environmentally-friendly and fuel-efficient vehicle will be eligible to

claim federal income tax credits worth thousands of dollars. Individual

states also offer generous incentives, including hybrid state tax credits,

new High-Occupancy Vehicle (HOV) lanes access and discounted thruway tolls

for alternative-fuelled vehicles.

And that’s not all you can save from going green! You can now save on your

parking fees at a number of universities and some auto-insurance companies

are offering insurance discounts for hybrid-vehicle owners nationwide.

If you want to take advantage of these incentives and contribute to energy

conservation then visit HybridCenter.org and complete a personal profile

about your driving needs and habits. You will get in-depth advice on hybrid

models that would make economic sense to you and local, state and federal

incentives available where you live.

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 is

usually 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.

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 different

estimates 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 get out of a lease before your contract expires

When your lease is up, you can simply turn in the keys and lease another

car or buy a new one. But how about getting out before the lease ends?

Maybe you can’t afford the sky-high payments on that silky Jaguar JX V6

model anymore or you’ve just had a baby and you need a larger and more

spacious vehicle?

Unfortunately getting out of a lease is not as easy as getting in! A

leasing contract is difficult and expensive to terminate early. Simply

turning in the keys and walking away from a lease can result in stiff

penalties. You credit could be ruined and you could even get sued for

breach of contract.

It’s not all doom and gloom though. Actually, there is a number of

options available to you.

You can sell the car yourself and pay off the bank. This can be cost

effective if the market value of the car is close to the buy-out number.

Do not hesitate to exercise this option even at a loss if it happens to be

lower than the termination fee.

Your best option, though, is to transfer your lease for someone who would

“assume it” and take it off your hands. There is a whole set of potential

buyers looking for short-term leases without all the hassle and extra

costs. Check with family and friends or use the services of lease-

assumption websites, like swapalease.com, to list your car. Make sure you

check the credit worthiness of the new lessee and provide the car in good

Independent Car lease companies

To lease, you have two possible choices: either lease through a dealer’s

finance source or through an independent lease company.

A conventional dealer has a captive finance source, which can be the car

manufacturer’s financial company, such as BMW Financial Services, Honda

Motor Credit or General Motors Acceptance Corporation (GMAC), or a major

national bank such as Chase Manhattan.

Independent lease companies are no financial obligation to any single

one manufacturer financing source, but work with dealers anywhere in the

country.

So which one is better?

Conventional dealers provide better lease-deals on limited-time promotions.

Factory-subsidized cars that have subvented money factors and residuals are

very attractive lease deals and can be very hard to beat anywhere else.

Independent lease companies can offer you unbiased and professional advice

on vehicle selection regardless of make and model. This is because they are

not tied to a single manufacturer or financing source, unlike conventional

dealers who have to sell specific models. They can also be more flexible

regarding negotiating lease terms like residual value and mileage.

Ultimately, if you prefer a more personal and customer-oriented

relationship with your leasing agent, then you will do well with an

independent leasing company.

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 the

contract 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.

Go green and save on your lease

Hybrid vehicles’ popularity has sharply grown from a couple of thousands

in early 2000 to close to 300, 000 by the end of 2005. The trend is

rapidly catching with the auto-leasing industry with generous tax credits

and incentives on offer if you go green.

Beginning in 2006, businesses and taxpayers who lease, or purchase, an

environmentally-friendly and fuel-efficient vehicle will be eligible to

claim federal income tax credits worth thousands of dollars. Individual

states also offer generous incentives, including hybrid state tax credits,

new High-Occupancy Vehicle (HOV) lanes access and discounted thruway tolls

for alternative-fuelled vehicles.

And that’s not all you can save from going green! You can now save on your

parking fees at a number of universities and some auto-insurance companies

are offering insurance discounts for hybrid-vehicle owners nationwide.

If you want to take advantage of these incentives and contribute to energy

conservation then visit HybridCenter.org and complete a personal profile

about your driving needs and habits. You will get in-depth advice on hybrid

models that would make economic sense to you and local, state and federal

incentives available where you live.

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 miles

a 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-mileage

limit 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. Negotiate

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

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 miles

a 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-mileage

limit 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. Negotiate

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

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 the

contract 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.

How to get out of a lease before your contract expires

When your lease is up, you can simply turn in the keys and lease another


car or buy a new one. But how about getting out before the lease ends?


Maybe you can’t afford the sky-high payments on that silky Jaguar JX V6


model anymore or you’ve just had a baby and you need a larger and more


spacious vehicle?


Unfortunately getting out of a lease is not as easy as getting in! A


leasing contract is difficult and expensive to terminate early. Simply


turning in the keys and walking away from a lease can result in stiff


penalties. You credit could be ruined and you could even get sued for


breach of contract.


It’s not all doom and gloom though. Actually, there is a number of


options available to you.


You can sell the car yourself and pay off the bank. This can be cost


effective if the market value of the car is close to the buy-out number.


Do not hesitate to exercise this option even at a loss if it happens to be


lower than the termination fee.


Your best option, though, is to transfer your lease for someone who would


“assume it” and take it off your hands. There is a whole set of potential


buyers looking for short-term leases without all the hassle and extra


costs. Check with family and friends or use the services of lease-


assumption websites, like swapalease.com, to list your car. Make sure you


check the credit worthiness of the new lessee and provide the car in good