My spouse wants to lease a car for the summer. She has the notion that it’s no different than renting a car from Alamo, just for a longer period. My fuzzy take on things is that it’s somewhat more complicated than that, and that there are up-front costs and that it may not be possible to lease a car for that short a period. But I’m just talking out my ass on this one.
What’s the real deal with leasing a car? Or is it all over the board?
I’ve done a mini-lease at Avis in the long, long past. It’s a fixed rate significantly cheaper than the daily rate, but significantly higher than a dealer-lease. Of course as a rental, you get all of the maintenance covered and I had unlimited miles. But… it was for work, and work paid, and I’d not want to make those payments out of my own pocket for such a long time (but yet short time).
No idea. Can you lease a car for a number of months only? Leasing implies that you are responsible for the payment of the depreciation of a car over a period of time. And the depreciation is an asset. And that asset is taxable. So you pay the lease, and you pay the taxes on the original value minus the final value.
“Leasing” a car is not something you’d do for a summer.
A car lease is basically a financing option. For all intents and purposes, you are buying the car. It is registered in your name, you pay the registration and insurance, you are obligated to maintain it, if it gets stolen it’s your responsibility.
New car leases generally run between 36 and 60 months. The lease payment is a function of (i) the initial price of the car, (ii) the estimated value of the car at the end of the lease period, and (iii) the finance rate (interest factor). At the end of the period, you can either give the car back (and they charge you if you’ve driven too many miles, or if there’s any damage to the car, as that affects the value in (ii), above), or buy it for the estimated value (the residual).
Lease payments are less than loan payments, because you’re really only paying off the difference between the initial cost and the residual, plus finance and carry costs.
Up front, you pay license fees and registration, plus first month’s lease payment and taxes. You may also pay a “capital cost reduction”, which is basically an upfront payment that will reduce the amount of the payments over the term.
You negotiate a lease just like any other car purchase - the amount of the lease payments depends on the amount the dealer charges you for the car, so the lower you can get that number, the lower the lease payments. The residual and interest factors are generally set by the finance company, and aren’t negotiable.
At the end of the term, if there’s no damage, and your under the milage limits, you can give the car back for free (even if the initial estimate of the residual value was wrong).
“Renting” a car is what you’d do for the summer. I’m not sure where you’d go about doing that. Craig’s list?
I would say that a lease is like paying for part of the car, and when you return it with x miles and y wear ‘n’ tear, the agreement between the parties is that no more money is owed and the car is the sole possession of the leasing company from a certain date forward.
If you lease a 28,000 dollar car for 36 months and the ‘buyout’ at the end is 16,000 and you return it in good condition with the agreed miles, you walk away from it. However, they can take your security deposit, ring up extra charges if there are dents, damage over a certain amount and excessive wear and tear. Also, mileage must be under the agreed amount or something likem15-20 cents per mile will be tacked on.
Leases can also increase your insurance rates slightly, because they require certain amounts of coverage you might not have.
Google ‘lease versus loan calculator’. You can enter various criteria and some calcs will tell you whether leasing or buying makes more sense for you.
Another thing worth mentioning from a practical standpoint: the residual value is a necessary part of the lease calculation. The industry standard for predicting future value is a company called ALG, and the lowest term that they publish residual values for is 24 months. I see dozens of lease programs every week, both from lenders that use ALG values, and lenders that generate their own residuals – and the lowest term I’ve ever seen on an auto lease program is 12 months.
All major car rental companies offer “long term” rates. For instance, Enterprise (Canada) gives discounts on their monthly rates if you have the vehicle for consecutive months.
Thanks all. It’s as I figured, only worse.