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March 25, 2013

The pros and cons of leasing a car

(Continued)

Instead, there are three things you should pay attention to. The first is the “capitalized cost.” This is what you and the dealer agree that the vehicle is worth right now. Just as if you were buying the vehicle, you want to negotiate the number as low as possible.

The second is the “money factor.” This translates into the cost of financing. The entity leasing the vehicle has to purchase it before they can lease it to you. This is the cost of the money they use.

The third factor is “residual value.” This is what the parties agree will be the value of the vehicle at the end of the lease. A high residual value will result in lower payments but make it more expensive for you to purchase the vehicle at the end of the lease. If you want to trade the vehicle before the lease is up, it reduces a lot of your flexibility.

Yes, it is possible to trade in your leased vehicle before the term is up without taking a bath. Websites like SwapALease.com and LeaseTrader.com, where consumers can find other consumers to take their car and take over the lease payments, have in recent years, added more flexibility to leasing.

What to do

In the end, the problems many consumers face with an auto lease are  caused by not completely understanding how they work. Leases are different from a sale but not that much different. By focusing on the bottom line – what the vehicle actually costs – the consumer has a better chance at a satisfying lease deal.

That means doing your homework on the car before ever setting foot in the dealership, just as you would do if you planned to purchase it. Checking automotive sites like Edmunds and Kelly Blue Book will help you arrive at that all-important number – what the car should cost.

Story provided by ConsumerAffairs.

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