- Lockdowns due to the COVID-19 pandemic are making first-time car buyers out of many.
- Whether you’re buying new or used, it’s important to do your research before you commit to anything.
- Vehicle maintenance is also an important thing to remember.
- Visit Business Insider’s homepage for more stories.
Thanks to the COVID-19 pandemic, taking public transportation or flying might not seem so safe right now.
For many, the next logical step is to consider car ownership. People who have never owned a car before now suddenly find themselves endeavoring on the daunting task of car buying for the first time ever.
Car dealerships, in response to a drastic decline in foot traffic in their showrooms, have adopted virtual tours and car deliveries to make the process easier for those wishing to stay safe. But the dealership is just a small part of the whole process — there are a number of things that need to happen first before you even set foot in one.
Whether you are looking for a new or used car as your first car, here are some steps you can take to make a smart and informed decision.
1. Establish a budget
Don’t spend more than you have. This seems very obvious, but it’s still worth repeating. Figure out how much money you have to spend, hopefully without altering your life too much. Do you have enough to pay cash upfront? Or do you need a loan?
If you need a loan, car-buying expert Tom McParland, who owns a service called Automatch Consulting that helps people buy cars, suggests using an easily Google-able tool called the “car loan calculator.”
“You can start with your payment, estimated APR and loan term and it will give you your spending limit,” says McParland. “Don’t forget to factor in for tax, fees, etc. Any trade or down payment you have will increase the budget accordingly.”
2. Buy it before you need it
Another thing to keep in mind as you approach car buying is to buy the car before you need it. Basically, if you are faced with a situation where you can’t get to work because you don’t have a car, it means you likely won’t have as much time to devote to careful research and financing options.
Stay ahead of that. If you anticipate you’ll need a car soon, it’s better to get it sooner rather than later.
3. Consider your timing
There are certain times of the year when you can potentially score a better deal. McParland says, “Late summer [and] fall are usually when dealers try to clear out older inventory in anticipation with new models. And often between Thanksgiving and Christmas, there are good deals.”
4. Know what type of car you want
You, being a citizen of this world, have certainly observed that there are many types of cars to choose from.
What sort of car fits your needs? Do you want something compact because you live in a city? Or do you want something bigger to fit all your cargo and family members? Do you live somewhere with inclement weather?
These are all things to think about when considering a car.
Furthermore, ask yourself if you want to go down the new-car or used-car route.
New cars, of course, mean that you’ll get stuff like a factory warranty and you can avoid situations where you have to worry about past owners. But new cars also tend to be more expensive and have not taken a depreciation hit yet. If you buy new, you’ll take the depreciation hit.
Used cars can be cheaper, but they require a bit more individual looking-over before you can pull the trigger. More on that later.
But for now, also know that if you’re thinking about a used car, consider a good Certified Pre-Owned deal — a used car that’s been through some kind of pre-sale inspection — but be sure to ask to see the specifics of that inspection and anything that might have been repaired, advises Cars.com.
The other used-car route to think about is the used-rental-car route. Business Insider has detailed how to buy a used rental car here. They’re not always as scary as you might think!
5. Research your car(s)
Once you’ve narrowed your search down to one car — or a few — it’s time to read reviews.
There are several places to read up on a car review, Business Insider included. See if you can find any long-term car reviews. Typically, automakers loan cars to journalists for only a week at a time, so while you’ll get pretty good driving impressions and material takeaways from shorter reviews, most won’t have insight into what it’s like to actually live with the car for a long period of time.
For things like safety ratings, go on either the National Highway Traffic Safety Administration‘s or Insurance Institute for Highway Safety‘s website for safety information and ratings. NHTSA also has a database of recalls you can look into.
For economy information, simply search for the year, make, and model on the US Department of Energy’s website, the official government source for fuel economy information.
Finally, read the forums. Almost every single model of car has dedicated car forums: online communities where owners gather to discuss repairs, issues, or swap stories. Looking through the forums, you can see if owners found things that were commonly defective across all their cars, or listen to their complaints.
6. Get your finances in order
If you are thinking about getting a loan, it’s important to know your credit score.
US News recommends obtaining a pre-approved loan before you even set foot in a car dealer as a way to negotiate later: “By applying to at least one local bank, credit union, online bank, or online lender, you can get an offer that a dealer will have to meet or beat to get your business. Without an offer in hand, the seller will have no incentive to cut you a deal.”
On top of that, loans come with a bunch of stuff you’ll need to learn. US News has this separate guide that walks you through all the vocabulary.
Also, as cars and trucks have gotten more expensive in recent years, lenders have been increasing the length of their loans. Now, you can find 72 and 84-month car loans, which is a terrible idea! Don’t fall for those.
Those interest rates are typically higher and you might very well end up owing more money than the car is worth. And when the warranty runs out, you’ll have to worry about expensive repairs while still making payments.
Cars are depreciating assets. Keep that in mind. Hardly any car is going to appreciate in value as time goes on.
7. Have a place to park it
The ideal situation is one where you have a driveway or a garage space for the car. But if you don’t, will you have to purchase a space to use? A permit? Or will you street park? Are you familiar with the local parking laws around your home?
It’s a good idea to square all this away before you bring home a new car.
8. Research the dealership
Not all dealerships are created equal. Some offer better services than others. Some have better inventory than others. In general, it’s better to check out a dealer’s inventory before showing up just to browse. Call and confirm the specific model you are looking at is available.
Also confirm that test drives are offered. This is arguably the most important part of the whole process, which we’ll get into in just a second.
On avoiding bad dealerships, McParland says, “Read reviews on dealerships and especially be careful about places that specialize in selling cars to folks with bad credit. Be sure to understand your contract and be clear about the numbers before you sign.”
He goes on, “The internet is key here. Sometimes you can find a better deal or a better value by casting a net outside of your region. Always get quotes in writing via email before you go to the dealership.”
9. The test drive
The big moment! The one you’ve been waiting for! This is where you can finally meet the car you’ve been reading about and turning over in your head. Test drives are the place where you can physically evaluate the car that you’ll be potentially spending a lot of money on and time with.
As mentioned above, make sure to ask for a test drive — and one of good length at that, if you can swing it. See if you can try the car out on both local roads and highways. Places where you’d typically spend a lot of time in your car.
Also know that a test drive doesn’t just evaluate how a car drives, but also how it fits with you. Before even leaving the lot, take some time to sit in the car, move the seat to your driving position, and see if you are comfortable. Can you see out of the windows easily? Can you fit all of your stuff in it? Does your family fit comfortably in it? Sometimes a car can seem perfect on paper and then the whole idea falls apart as soon as you get into the driver’s seat.
When it comes to a used car, this evaluation is even more important, because you are also looking out for potential wear and tear. Make sure the electronics work, check the condition of the body, see what condition the tires are in. Obtain a vehicle history report and maybe even ask an independent mechanic to examine it. It’s a small price to pay to potentially avoid a big mechanical issue in the future.
And once you go for that test drive, listen for any irregular noises and be on the lookout for any abnormal vibrations coming from either the wheels or the steering wheel. That could indicate a mechanical problem or issues with the wheels or tires.
Now, it’s time to negotiate.
“Remember, the margin for negotiation on used cars is very different than new,” says McParland. “Used cars might have a few hundred bucks worth of wiggle and often dealers will have a ‘no haggle’ price, [but] this doesn’t always mean they are ripping you off. With the online marketplace, often dealers need to price their cars to sell quickly.”
If you notice an issue with the used car but it’s not a dealbreaker, maybe use this as a reason for the seller to bring the price down a bit. If you’ve shopped around and know of another seller that’s offering a competitive price, perhaps it’s worth mentioning that, too.
And if you’re paying cash upfront, you probably have quite a bit more negotiating power. Cash is king, after all.
At the end of all of it, though, be ready to walk away if the deal doesn’t suit you.
11. Understand that cars need to be maintained
Admittedly, this isn’t a car-buying-specific tip, but it’s a bit of advice every car owner ought to know: maintain your car!
Your car isn’t some magical machine that will run perfectly forever and ever and you don’t ever need to think about it once you buy it. They also need maintenance and service. If you can get a warranty for the first few years, that’s ideal, but after that, you need to be on top of keeping it maintained.
Consumer Reports has a great guide on how to maintain your car, which you can read here, but it includes checking the oil, tire pressure, brakes, battery, and tire tread. Don’t ignore any weird noises if they develop, and definitely don’t ignore the check engine light. This can protect you from costly repairs in the future.
Washing your car helps, too. The paint is what protects the body from rust, so it’s a good idea to keep the paint nice, especially if you live in a place where the roads get salted often during the winter. Opt for undercarriage spray during these months, as salt can accumulate there and cause problems.
A well-maintained car will last longer and you’ll get more out of it. And it’s safer.
Red-hot market: Tips for first-time homebuyers
With Long Island’s housing market sizzling hot, the process of buying a new home can seem like a daunting one. It doesn’t have to be.
To help first-time homebuyers chart the waters of buying in this market, Newsday Live hosted a question-and-answer session Tuesday with local housing experts as part of its web series “Hot Tips for a Hot Market.”
The virtual session, moderated by Newsday anchor Faith Jesse and residential real estate reporter Maura McDermott, included Tricia Gleaton, vice president of the Homeownership Center at the Community Development Corp. of Long Island, and Quentin Hardy, branch leader with Movement Mortgage in Huntington.
Responses have been edited for length and clarity.
Where should buyers get started? And what first steps should they take?
Gleaton: For somebody who’s looking to buy a home for the first time, a great place to start is by seeking out homebuyer education and counseling. A lot of people aren’t aware they exist. And part of that process will be to help establish a budget, understand what’s affordable and what’s going to be [financially] comfortable long term … and then getting access to loan programs, down payment assistance and closing costs, and grants that are out there that may be leveraged in the home purchase.
Many first-time homebuyers don’t have the standard 20% down payment. What tip can you give them on saving up? And what options do buyers who don’t have 20% to buy their first home have?
Hardy: There are lots of options. I think the phrase “the standard 20%,” that’s not the standard. It’s sort of a myth and a belief that’s been propagated but I bought my first home back in the late 1990s with 3% down. Fannie Mae, Freddie Mac, FHA … there are lots of 3%, 3.5% down payment programs so you do not need 20% as a first-time homebuyer. There are lots of low down payment options buyers should look into. I know for my first home, we had to sacrifice. I lived at my parents’ house as an adult, married with a child because that’s what we needed to do to save up to buy our first home.
Gleaton: Many lenders offer down payment and closing cost assistance as well as state [and municipal] grants. There are programs available where someone can rent with the plan that they’re moving forward with the purchase of the home. And there are unique programs. One of the programs CDC of Long Island offers may help [people who are] Housing Choice Voucher holders, commonly known as Section 8.
A lot of people have blemishes on their credit report. So what can people do if they have bad credit, but they still want to get a home?
Hardy: I think where we have to start is with that word bad. How bad is bad? You can have credit that’s so poor that you cannot get a home loan. But there are banks that will do loans at 580. There are situations where you can get loans as a first-time homebuyer even if you have bad credit. It can be low enough that you’ve got to work on the credit first, though it would probably be a great start to have a conversation with a professional about how bad bad is.
The market is hot right now. Should buyers try to wait it out in hopes that it’ll cool down?
Gleaton: It is a very competitive market right now but that hasn’t necessarily dampened people’s desires to become first-time homeowners. One of the things that we tell people is you don’t have to rush … it doesn’t necessarily mean you don’t want to continue your search. Continue to save, continue to work toward your purchase, but be patient recognizing that you want to make an informed decision that’s not emotional. Be careful with bidding wars. Take your time to do your search and research in a methodical way. Be patient. The right home is out there for you.
Hardy: The general rule is it’s not the timing of the market, it’s time in the market … so that now is a good time to buy.
Car Leasing Guide: Everything You Need to Know
At first blush, car leasing seems like a grand idea. After all, you can get more car for the same monthly financing payment. Who wouldn’t want that? Well, there’s a lot more to weigh between financing and leasing than simply getting more car for your buck. Although, that is the primary reason people lease.
Numbered among the other reasons people lease is the thrill of that new car smell. Some folks simply like the idea of driving a new car every two or three years. Leasing also streamlines writing off your vehicle as a business expense at tax time.
Another reason to lease is that sometimes the carmakers offer really sweet leasing deals that aren’t available to those financing a car purchase. Repeat leasers also always have a car that’s usually under a factory warranty. And finally, when the lease expires, you don’t have to negotiate a trade-in value or go through the selling process. You just hand over the keys and walk away. Easy peasy, right? Well, usually. Read on.
What is a Car Lease?
A car lease is basically a long-term rental for a contracted number of months. Unlike financing a car purchase based on you eventually owning the car, leasing is like a long-term rental. You are still locked into the deal for a contracted number of months and a monthly payment.
However, instead of paying down a loan and building equity, you are paying for the car’s estimated lost value (depreciation) during the term (length) of the lease. You are paying for that and the interest on the money borrowed to underwrite the lease.
What Do You Need to Know Before Leasing?
Arguably the key concern when considering car leasing is, on average, how many miles you drive yearly. According to the United States Department of Transportation, most Americans drive a total of 13,476 miles per year.
Signing a lease binds you contractually not to exceed an established mileage limit. That limit, or mileage cap, is averaged out over the number of years in the agreement.
Depending on the lease, agreements range from 10,000 miles per year to as many as 15,000 miles per year. Whatever the limit might be, the leasing company will penalize you for every mile above the limit. Generally, that penalty can be between $0.12 to $0.30 per excess mile. At $0.30, that works out to $300 for every 1,000 miles over the limit. It can add up.
Can I Negotiate the Price of a Leased Car?
Yes. As with a financing deal, you can save yourself money by negotiating down the car’s selling price you are going to lease.
What is the Money Factor in Leasing?
When you finance a car, you must also pay for the money you are borrowing. What you pay is called interest, and it’s displayed as a percentage (2.5%, 3.0%, and so forth). You need to know the rate of interest you will be paying. The higher the interest rate, the higher your monthly payment.
When you lease, you must also pay for the money the lessor used to buy the car. In leasing, however, the interest is called the money factor. It’s calculated and displayed differently (0.0010, 0.0023, and so forth). How in the world do you know what the interest rate is on a lease, right?
To translate the money factor into a form more easily understood, just multiply it by 2,400. So, 0.0023 x 2,400 = 5.5%. We know: Why don’t they just say that?
Who is Responsible for Maintaining a Leased Car?
The leasing company expects you to maintain your leased car carefully. That means following the maintenance schedule outlined in the owner’s manual. The good news is, many new vehicles come with some sort of free maintenance plan.
At the end of the leasing period, an agent of the leasing company will inspect the vehicle for any damage beyond “normal” wear and tear. Determining what is normal is entirely up to the inspector. If the inspector decides any damage is beyond normal wear and tear, you will be charged for it.
Who is Responsible for Insuring a Leased Car?
You are responsible for insuring your leased car. The leasing company dictates the amount of coverage you must have for the vehicle. Determine what those amounts will be and contact your automobile insurance agent to establish the annual premium before you lease.
What if I Want Out of My Lease Early?
It bears repeating: A car lease is a binding contract. The leasing company sets the monthly payments based on the length of the lease established in the agreement. If for some reason — any reason — you want or need to bail on the lease early, there will be a penalty for doing so.
At worst, that penalty may require a balloon payment to cover the remaining outstanding payments. You can’t just return the leased car or sell it to pay off the leasing company. It’s not your car, and you have no equity in it.
Market conditions these days make it possible to negotiate with a dealership if you’re planning to buy a car. Or, because the used car supply is tight, dealerships may be more willing to make a deal to get you out of your lease early.
Brokers with auto lease transfer companies like swapalease.com can also attempt to connect you with a deal that lets you sign over the lease to someone else.
Before you make any choices, weigh all your options to determine the best option for you.
How Does My Credit Affect Car Leasing?
As with financing a car purchase, a leasing company will use your credit score and history to determine whether or not it will lease to you. Roughly 83% of new car leasing during the first three months of 2021 was to borrowers with a credit score above 660. This is according to the national credit bureau Experian. It also found that the average credit score for leasing during that period was 734.
If your credit score is 501 to 660, you may be able to find a lender willing to lease to you, but expect to put down a hefty down payment. Also, you can expect to be tagged with a higher-than-average interest rate.
It has always been true that leasing generally requires better credit than financing. When leasing, you have little or no skin in the game. All you stand to lose if you stop making your lease payments is whatever down payment you made.
You don’t now and never will have any equity in a leased vehicle. You are really renting it, remember? Leasing companies know you have little to lose. Consequently, they tend to be pickier when evaluating lessees rather than buyers.
RELATED STORY: Can I Buy a Car with Poor Credit History?
Car Leasing vs. Buying
Whether you lease or buy and finance your next car, you will be obligated to make a monthly payment. In most cases, both will also require some amount of money upfront. When financing, it’s usually a down payment of some sort.
With leasing, you may have to put up a security deposit, the first month’s lease payment, a fee for arranging the lease (acquisition fee), a down payment, or some combination of those. In either case, there are also car title and registration fees.
Pros of Leasing
Because you are only paying for the estimated depreciation while driving the car and not the entire purchase price, monthly leasing payments tend to be lower than financing payments. It simply means your money will go farther leasing a car than financing one. A lower monthly payment is the top reason people give for leasing. It isn’t the best reason, but it is the most common.
Another perk of leasing is the freedom to drive a new car every two or three years with no strings attached. A side benefit of having a new car every few years is, you probably will always have a vehicle protected by the factory new car warranty. There may even be a free maintenance warranty for a portion, if not all, of the lease. And, every couple of years, you can have a car with the most up-to-date technological advances.
At lease end, you don’t need to worry about the hassle of selling the car or negotiating its value as a trade-in. You drop the keys on the lessor’s desk and walk away.
Leasing is better geared to writing off the cost of driving on your taxes if you can deduct business expenses.
Here’s some excellent news: If you still like the car at the end of the lease, you can buy it. Because the leasing company estimated what the car would be worth at the end of the lease (the residual value or residual), they may have guessed wrong.
If they underestimated the car’s worth at the end of the lease, you could cash in by buying that car for less than the current market value. It’s the smart thing to do in a tight market when supply struggles to meet demand.
RELATED STORY: How to Profit from an Off-lease Car
Cons of Leasing
Yes, the idea of driving a new car every few years with the benefit of always being under warranty is tempting, as is that lower monthly payment. Sadly, though, it means you will never build any equity. What you pay for with a lease is the depreciation. A car will lose roughly 35% to 40% of its value in the first three years. At the end of the lease, you won’t have a thing to show for those two or three years of payments.
Typically consumers sign a closed-end lease. There are also open-end leases. The difference is discussed in What Are the Types of Leases? in the section below. Closed-end is the type of lease covered here.
Driving a leased car is like counting calories to lose weight — every mile driven counts. Every lease comes with a mileage limit. It may average out as low as 10,000 miles per year, although 12,000 miles is more likely. You may be able to find a lease with a yearly cap of 15,000 miles. There are even some more expensive high-mileage leases on the market.
You’ll pay more per month but may avoid getting slapped with a mileage penalty at the end of the lease. That penalty is usually about $0.25 per excess mile. If you do a lot of driving, that can really add up.
The leasing company will hold you accountable for anything beyond its definition of normal wear and tear. You will be on the hook for any repairs the lessor deems over and above normal. Suddenly, with the excess mileage fee and damage fee, returning that leased car isn’t the easy-peasy experience expected.
Leasing is also like joining a street gang. Once you’re in, you’re in. Suppose some change in your life creates the need to get out of the lease early? Good luck. You may find yourself faced with owing a balloon payment equal to the outstanding payments on the lease. At the very least, you will have to pay some sort of stiff penalty. There are online companies like swapalease.com, brokering deals between people who want out of a lease and people willing to pick up a lease. But, such brokered deals will cost you, too.
Pros of Buying
The top advantage to buying versus leasing is that the vehicle is yours when the loan is paid off in five or six years. There will be the value you can cash in by selling or trading it in as a down payment on another car. It’s an asset. Of course, you can always decide to drive it until the wheels fall off. No payments for another five years or more is a pretty good perk. Especially when you consider by year four, the repeat lessee is paying for the depreciation on a second new car and still gaining zero equity.
Getting out from under your car loan is much easier than breaking a lease. As long as the lienholder is paid off, you can sell or trade in your car at any time.
Cons of Buying
Particularly if your credit is a bit sketchy, you may want to put down a larger down payment of around 20% if you want better odds of getting approved. That would be $5,000 on a $25,000 car. Leasing would allow you to keep at least some of that up-front cash.
Depending on the length of the loan, depreciation, and the way interest is calculated, you may owe more than the vehicle is worth until the last year or so of the loan. By that time, the car warranty may well have expired, too. Not only do you have to continue making payments on a 5- or 6-year-old car, but you may have to pay for any repairs out of your own pocket.
The Differences of Leasing a Car vs. Buying a Car
You can draw some fairly strong contrasts between leasing and financing. Both have advantages and disadvantages. Short term, a lease will cost less. In the long run, however, two leases will cost more than buying one car. And, at the end of five or six years, the loan will be paid off, and whatever value the car retains will be yours.
Here are some other stark differences.
- Monthly payments: Leasing payments are almost always lower than financing payments on the same vehicle.
- Early Termination: You will pay a hefty fee if you want to end a lease early.
- End of term: Although you may owe some penalties, you can just hand the car back to the lessor at the end of the lease.
- Mileage: A lease restricts the annual mileage. Exceeding that mileage will cost you big.
- After-market: A leased vehicle is not yours to do with as you wish. Any alteration will cost you.
- Taxes: Leasing a vehicle allows you to write off the monthly payments as a business expense if you’re eligible.
- Warranty: Most leased vehicles come with a warranty that will likely cover your car for the duration of the leasing period, saving you money should something happen to it.
- Monthly payments: For the same vehicle, financing payments will almost always be more than leasing.
- Early Termination: You can sell or trade in a financed vehicle at any time, as long as you satisfy the loan balance.
- End of term: When the loan is paid off, the car is yours to keep, sell, or trade in.
- Mileage: There are no mileage limits with a financed car.
- After-market: Financing a car allows you to make it yours. Take care not to void the warranty. Otherwise, customize it to your heart’s content.
- Credit: If you have bad credit, you will most likely have to put down a bigger down payment to get approved.
Leases aren’t one size fits all. The leasing concept doesn’t vary, but the contract details do.
What is a Closed-End Lease?
A closed-end lease is the most common form of leasing. Sometimes called a “walk-away” lease, it sets firm terms, allowing the lessee to walk away at the end of the lease. All variables like the length of the lease, monthly payments, and the mileage cap are established in the leasing contract. As long as the contract terms get met, the lessee can just drop off the car at the end of the lease. The lessee also has an option to buy the vehicle at a pre-determined value.
What is an Open-End Lease?
An open-end lease is a bigger gamble for the lessee, who is accepting more of the risk. Typically that lessee is a commercial enterprise or business. The leasing company still sets a residual value and the monthly payments. Luckily, open-ended leases usually have more flexible mileage options than their closed-ended lease counterparts. However, unlike a closed-end lease, it’s the lessee taking the hit if the residual value at the end of the lease is less than the vehicle’s actual market value. The lessee must pay the difference.
What is a Single-Pay Lease?
Also called a one-pay lease, this is a lease in which you pay the entire run of monthly payments upfront. There are two primary reasons for going this route. One, it usually reduces the interest or money factor rate. You wind up paying hundreds less than if you were to pay monthly. Two, if your credit is questionable, a single, up-front payment may motivate a leasing company to take a chance on you.
How Long is a Car Lease?
You may find carmakers offering leasing specials of odd durations, 39 months, for instance. But, generally, leases are for 24 or 36 months. You can, however, find leases out there for longer terms. As with financing, the longer the term of the lease, the lower the monthly payment. That difference, though, may not be much.
What is a Leasing Mileage Cap?
Even when you finance a car, the higher the mileage when you sell it or trade it in, the less it’s worth. The difference with leasing, the lessor factors in a specific number of miles when estimating depreciation. Over the course of a lease, the allowable mileage or mileage cap might average out to 10,000, 12,000, or 15,000 miles per year. Exceeding the mileage cap reduces the car’s value at the end of the lease. This is why a leasing company will charge you a predetermined penalty for each mile over the cap. Be sure you know the per-mile penalty before signing the lease.
Can a Car Lease Be Extended?
Say you haven’t found a replacement vehicle, and you are at the end of your lease. Is there a way out? Yes, most lessors will gladly extend the lease on a month-to-month basis or for a fixed number of months. You will have to continue making the monthly payment. Also, in the case of a multi-month extension, you may have to sign another contract.
What Are the Key Leasing Terms I Need to Know?
We have been using some reader-friendly shorthand in this guide, but here are the formal leasing terms you should understand.
- Acquisition Fee: This is a fee a lessor charges for setting up the lease. This fee varies greatly and can be as much as $1,000. Ask before signing any lease what fees get included in the acquisition fee. Fees you might see could include destination charges and documentation fees for processing the lease title, license plates, and car registration. It is firm and can’t be negotiated away. However, it can be folded into monthly payments.
- Allowable Mileage: Also called the “mileage cap,” it is the average number of miles per year you can drive the car. The lessor will penalize you for every mile above that number.
- Capitalized Cost: This is the agreed-on selling price of the vehicle plus any fees to be included in the monthly payments.
- Capitalized Cost Reduction: Also called cap reduction, it is any element lowering the capitalized cost. It usually takes the form of a down payment or trade-in allowance.
- Depreciation: The lost value of the vehicle over the course of the lease is the depreciation.
- Disposition Charge: This is a charge to clean and dispose of your car at the end of the lease. You may be able to negotiate it away if you buy the car or lease another from the same agency.
- Drive-Off Fees: Any fees and deposits due to begin the lease. Don’t forget that sales tax will be due for your lease transaction. Ask the lessor what fees are included in the drive-off fees. You may be able to negotiate some of the lessor’s tacked-on fees.
- Early Termination: Breaking a lease contract before the end of the leasing period. If you want out of your lease early, it will cost you dearly. You may need to come up with a sum of money equal to the remaining payments.
- Gap Insurance: Some leases automatically include gap insurance in the capitalized cost. If the car is a total loss through theft or collision, your insurance may not cover the entire loss. Gap insurance pays for what your car insurance doesn’t pay.
- Lessee: The party leasing the car.
- Lessor: The entity financing the lease. It could be a bank, credit union, or a carmaker’s financial division.
- Money Factor: In financing, this is called the interest rate, but it looks markedly different. As with financing, though, the higher the money factor, the larger the monthly payment.
- Payoff Amount: This is what it will cost you to buy the car at the end of the lease. It should be roughly the residual amount minus any security deposit.
- Term: The length of the lease.
Is it Possible to Lease a Car for One Year?
It is possible to lease a car for one year. But, why would you? A car depreciates as much as 30% by the end of the first year. Because your monthly payment is based on depreciation, that one year will be wildly expensive. You might do better with a long-term rental car. It’s worth checking out. Another idea you could try is a club. These are offered by luxury car club leasing companies and sometimes by manufacturers. The clubs allow members to drive new models for short periods of time. They usually include insurance and don’t require a long-term contract.
Can I Lease a Used Car?
Yes, you can lease a used car. In fact, most dealerships offer leasing incentives on their certified pre-owned (CPO) vehicles. These are gently used, newer model cars with factory warranties and other CPO benefits.
How to Lease Your Car
For the most part, the process of shopping for a leased car is about the same as shopping for a vehicle you plan to buy. Research is the key. Other steps to take include:
- Check your credit score. A credit score under 600 will be a very tough sell. When your credit score is low, the down payment is typically larger to get approved. The higher your credit score, the lower the money factor.
- Crunch the numbers. Figure out how much cash you can pay upfront. Some deposits and fees must be paid when you sign a lease, and many are not negotiable. The lessor may also demand a down payment.
- Determine the average annual mileage you drive. Your lease will have an average annual mileage cap of 10,000 to 15,000 miles. Be realistic about your driving habits. You will pay a penalty for every mile over the cap.
What to Look For in a Vehicle to Lease?
Find a model that retains its value. Some brands of vehicles simply retain more value as they grow older. Brands like Subaru, Lexus, Jeep, and Ram tend to retain much of their value through the years. When you buy a vehicle, value retention is important, but not until you sell it or trade it in. Value retention in a leased vehicle is important because the more value a leased vehicle is expected to retain, the lower the monthly payment.
What Questions to Ask Before Signing a Car Lease?
Here’s a list of questions to consider asking the dealership or other lessor before you leap.
- What is the residual value for the car I’m leasing?
- Once the lease ends, what is the price I can buy the car for?
- What is the money factor? If you don’t want to do the math, ask for it in percentage form.
- What is the monthly payment grace period?
- What is the delinquent fee for late payment?
- Will I be charged any other fees at the end of the lease?
- What are the penalties for early lease termination?
- What is normal wear and tear?
- How much do you charge per extra mile driven?
How Can I Reduce a Monthly Lease Payment?
- Reduce the capital cost by negotiating a lower vehicle purchase price.
- Ask for a lower money factor. Particularly if your credit score is over 750, go for a lower rate.
- Put additional money down or, if there’s a trade-in, negotiate for a higher trade-in value.
- Shop other dealers for a better deal.
What Are the Negotiating Points in a Lease?
- The vehicle purchase price is framed as the capital cost.
- The down payment.
- The trade-in value.
- The money factor.
- The disposition fee.
What Can’t You Negotiate in a Lease?
- Residual value is generally set in stone. You can give it a try, but don’t expect much.
- Acquisition fee. This is a charge that lessors rarely budge on.
Read Related Car Leasing Stories:
MTA’s ban on cash payments at station booths draws heat from advocates, pols
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The MTA’s decision to permanently end cash payments at station booths drew the ire of advocates and politicians Thursday, who accused transit honchos of depriving access to tickets for riders without bank accounts.
“Governor Cuomo must let transit riders pay with cash at subway booths. With one-third of New York City residents unbanked or underbanked, cash remains essential for millions of people.” said Betsy Plum the executive director of Riders Alliance in a June 24 statement.
At an MTA press conference on June 24, Chief Safety Officer Pat Warren said, in response to a reporter’s question, that the agency would continue its pandemic-era ban on cash transactions at the booths indefinitely, citing the rollout of its OMNY tap-payment system as making the booth transactions redundant.
“We currently do not plan to resume cash transactions in the booths,” Warren said. “We’re changing to the new OMNY system, which is the largest change that’s going on in the system… so there really is no need for it.”
Commuters with damaged MetroCards will have to mail them to the agency for replacement or shlep to MTA’s customer service center in lower Manhattan, reported the New York Daily News.
The City Council in early 2020 made it illegal for businesses to refuse cash, unless shops provided devices converting cash to cards, as is common in laundromats and at larger venues like Barclays Center in Brooklyn.
Warren noted that riders can still pay with cash at the 1,688 ticket vending machines in the system.
“No one should be inconvenienced, the opportunity is there to use cash to get a MetroCard and or we hope you start to use the OMNY soon,” he said.
But Plum and others said that riders will be left stranded any time those machines malfunction, which one advocate described as a “chronic” issue.
“Many low-income New Yorkers do not have access to forms of electronic payment, and as any frustrated straphanger rushing to work during a morning commute can attest, MetroCard vending machines are chronically broken,” said Jaqi Cohen, director of New York Public Interest Research Group’s Straphangers Campaign.
At stations for the MTA’s commuter trains on the Metro-North Railroad and Long Island Rail Road, cash payments resumed at station booths, and one union chief accused the agency of giving preference to suburban riders.
“Are they better than subway riders? Are they more deserving of this level of customer service? It’s an insulting outrage,” read a statement by Transport Workers Union Local 100 president Tony Utano, who represents the majority of the agency’s workforce.
According to city data from 2017, 11.2% of households in the city have no bank account and another 21.8% are underbanked, meaning they have an account but use other financial products for some banking needs.
More than a third of unbanked households, or 35%, are in ten neighborhoods that are predominantly Black or Hispanic, poorer, and where residents are more likely to have no credit score or bad credit and debt, according to the report, and one state legislator decried MTA’s new policy as a direct attack on working class New Yorkers.
“This decision is a crime against poor people, full stop,” said Brooklyn state Sen. Julia Salazar on Twitter.
A spokesman for the governor referred a request for comment to the MTA.
In a statement Thursday afternoon, the MTA’s chief spokesman, Tim Minton, appeared to walk back Warren’s comments from the day before, saying cash payments were merely under review and that transit bigs have yet to make a final decision.
“To be clear, no decision has been made and no decision was announced yesterday regarding cash returning to station booths,” Minton said in a statement. “The MTA continues to review logistics and other considerations associated with accepting cash payments at subway station booths post-pandemic.”
The spokesman noted that MTA still accepts cash payments for MetroCards at its vending machines, its MetroCard Mobile Vans that regularly travel the Five Boroughs, and via 1,470 select merchants and convenience stores.
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