Free Car Lease Calculator
Calculate a Fair Rate Before Leasing a Car!
The Costs of Leasing a Car
1
Cost of the Car: Car prices can vary significantly based on factors such as original and optional equipment, trim levels, and even the location where you plan to purchase the vehicle. The manufacturing plant where the car was assembled may also play a role in pricing. In some cases, manufacturers offer rebates or incentive programs for specific models, which can also affect the final price. Since the car’s price directly impacts your monthly lease payment, it’s crucial to negotiate with the dealer to lower the MSRP (manufacturer’s suggested retail price) before calculating any lease payments.
2
Lease Terms: Lease terms typically include the length of the lease (often 36 months or 3 years), the interest or lending rate, and the residual value—the estimated worth of the vehicle at the end of the lease. If you’re unaware of what the residual value is likely to be for that specific vehicle, you could be at a disadvantage in negotiations. Doing some research on the vehicle’s typical depreciation can give you an upper hand when discussing lease terms or securing an auto loan, allowing you to make a more informed decision and avoid unnecessary compromises.
2
3
Your Credit Score: Your credit score plays a significant role in determining the interest rate, often referred to as the “money factor,” when leasing a car. The money factor is directly tied to your interest rate. For instance, a money factor of 0.0022 corresponds to an interest rate of 5.28%, while a money factor of 0.0029 represents a 6.96% rate. Though these figures may appear close, the difference can substantially impact your monthly payments. Maintaining a good credit score will help you secure a lower money factor, leading to more favorable lease terms.
Car Leasing Pros and Cons
Some other advantages to leasing a car include:
- Monthly payments may be lower, especially on high-end vehicles.
- The car is usually risk-free because it's a new car and may not require any repairs during the lease term.
- The vehicle will be covered by the manufacturer's warranty.
- May include free oil changes and inspections.
- You can drive a more expensive vehicle affordably.
- The vehicle may have the latest safety features.
- You don't have to worry about trade-in value or selling it at the end of the lease; you simply drop it off at the dealership.
- Tax advantages for business owners.
Along with some pros, there are also disadvantages to leasing a car. These include:
- You absorb most of the depreciation on the vehicle during the first few years.
- Often, the lease costs as much as a car loan, and in the end, you have nothing to sell.
- If you lease cars year after year, you never build up equity in a vehicle.
- If you go over the allotted mileage, you may have to pay a steep fee (10-50 cents per mile) over the allowed number of miles.
- If you need to terminate the lease, you might have to pay an early termination fee.
- Leases often require a hefty down payment.
- You may still have to pay for new tires, brakes, and other maintenance items during the lease term.
- Watch out for end-of-lease fees.
Buy or Lease?
Market Fluctuations: If the value of the vehicle increases, owning a car can be more advantageous since you have the opportunity to sell it for a profit. Conversely, if the value decreases while you’re leasing, you won’t incur any losses when you return the car at the end of the lease term.
Technical Maintenance/Service: As vehicles experience normal wear and tear, they often require repairs and more extensive maintenance over time. When you buy a car, you are responsible for covering all of these maintenance costs. In contrast, leased vehicles are usually covered by the manufacturer’s warranty, which can help mitigate these expenses during the lease term.
Lease Term: When selecting a lease term, proceed with caution. A longer lease term typically results in higher overall interest costs. Additionally, if the lease extends beyond the vehicle’s warranty period, you may be responsible for maintenance expenses before the lease concludes, which could lead to unexpected costs. It’s important to choose a term that aligns with your budget and the vehicle’s warranty coverage.
Your Equity: When you purchase a vehicle and pay down the loan, you build equity over time. Owning a car means that once the loan is fully paid off, you possess an asset of value that you can keep or sell. In contrast, leasing a car does not provide you with any equity, as you return the vehicle at the end of the lease term without ownership. This is an important consideration when deciding between buying and leasing.
