Car commercials advertise affordable payments with stipulations hidden in the fine print. You could make payments as low as $300 on a new car…as long as you make a big down payment. And don’t cause significant damage to the vehicle. And stay within the yearly mileage limit. Instead of falling for a restrictive car lease, we’ll show you how to find the best deal for you.
Make a good, realistic lease.
Let’s start with the mileage limit. Did you know that the average driver can easily put over 10,000 on a car within a year? No problem if you own the car. If your lease limits you to 10,000 miles a year, you’ll be charged on every extra mile you drive. Your lease can charge anywhere between $0.15 to $0.30 per additional mile. Let’s say you drive 15,000 miles on each year of your lease and the extra mileage charge is 25 cents a mile. By the time you return your car, you’ll need to pay $3,750 in overage fees. Ouch.
Instead of suffering from extra fees, let’s give you some wiggle room with the mileage. Bumping up your mileage limit to 15,000 a year will increase your monthly payment by only eleven bucks. Paying $307 instead of $296 a month will only cost you $396 over 36 months. Sure beats $3,750, right?
You’re stuck with what you agree to.
Let’s say you want to buy a brand new Hyundai Elantra. The car costs $22,383 (including the tax and registration fees) and you’re offered a 36-month lease. In this scenario, your lease allows you to put 10,000 miles on your car a year. You need to put $2,500 down, pay a $500 security deposit, and you’re paying a $600 acquisition fee to cover administrative costs, such as paying for a credit report. You also decide not to trade in your vehicle.
As long as you adhere to your lease, you can have your new Hyundai for just under $300 a month. Not a bad deal, but keep in mind that you must keep your car in exceptional condition and mind your mileage limit. When you sign a car lease, you have to adhere to the restrictions within your agreement. Exceeding your mileage limit or damaging your car will result in hefty penalties, and once you agree to a certain monthly payment, you’re stuck with it. Be sure to ask for the best deal you can—and know what to look for in a good car lease.
Don’t be afraid to negotiate.
Salespeople can be intimidating, and they often hone in on the attractive low monthly cost. It’s easy to be swept away by a small monthly payment. Focus on negotiating the overall price and whatever you do, don’t let a salesperson pressure or sweet-talk you into a deal without discussing the cap cost of the vehicle. Here's a tip: try to get your loan as close to the invoice price of the car as possible.
Pay a smaller down payment—or none at all.
Whether you're buying or leasing, the larger your downpayment, the lower your monthly bill. When you're leasing, however, skipping the down payment and making larger monthly payments is actually the better deal. This sounds counterintuitive, but stick with me. If you were buying a car, then a hefty down payment wouldn’t be a big deal. That money would be going into the car you’re eventually going to own. When you’re leasing a vehicle, you won’t get that money back. You aren’t building equity in the car.
If you have good credit, try to avoid a down payment if you can. For example, if a $2,500 down payment makes your monthly payment is $307 a month, a $1,500 down payment only increases your payment from $307 to $339. Ditch the money-down (if you can) altogether and your payments increase to $386. If you've signed a 2-year lease, the extra $71 a month only adds up to $1,896, saving you $604 in the long run. If you can avoid making a down payment, do it! Take that couple of thousand dollars and put it into investments or an account where it will grow.
Consider buying your car at the end of your lease.
About a month or two before you finish your lease, you’ll be contacted by your lease company. They’ll pick your brain and offer another vehicle next. Consider buying the car you’ve been leasing — you might be offered a really good deal. While you’re considering this option, compare the residual value on your leased car to the price you’d pay if you were buying the same used car from a dealer. Chances are, you’ll get a better deal buying the leased car at the residual valued price.
If your 3-year-old Hyundai is scarred with dents, dings and everything in between, you’ll be penalized for the damages. You’re already familiar with the car and any problems that may arise when purchasing a used car. Why not buy the car you’ve come to know?