The most determining factor when it comes to resale values is public
perception of the brand, not its reliability ratings in quality surveys.
Take the Jaguar for example: it is consistently rated as a quality car, but
because of questionable reliability perception among the public, it takes a
sharp dip in value at the end of its lease-term

Higher-tech options and other cutting-edge features do not necessarily mean
the car will fare better. By the time your car is two years old, better
and cheaper systems will render the laser-guided cruise control, navigation
systems and built-in cell phone obsolete. Look for functional features,
such as automatic transmissions, power windows and wheel-drive to enhance
the vehicles value in the used-car market.

Used-car buyers view less favorably luxury vehicles that come with big
incentives. These are perceived as questionable in quality and
reliability.

As with new car-leasing, your price research should focus on the key
figures that are the initial market value and the estimated residual value
of the used car. This is harder to predict since there is no factory-set
sticker price on used cars, and the residual percentage is very much pegged
to a subjective current retail value. Use different sources to get a rough
idea of the value of the used car: your local dealerships, internet
car-evaluating tools, such as Edmunds.com and Cars.com, to name but a few.
Another way to pin down a good estimate is to compare the lease on your
given car to a lease on a new-car with the same make and model. This should
give you a better picture of the difference between leasing new and going
for used. Just like leasing a new car, used vehicle leasing is more
attractive when residual values depreciate the least. You stand a better
chance of finding a bargain in the high-end, luxury vehicles that keep
their values better as used cars.

Next, you need to check the initial mileage and the overall vehicle
condition. The maximum mileage on a used car should be no more than 12,000
miles a year. A 3-years old car with 50,000 miles on the clock is very
unlikely to make a good used-vehicle lease. Check for signs of excessive
use, like worn seat fabric, worn pedal pads and dirty engine, which might
indicate that the odometer has been rolled back. If the car is not
certified, you need to get it thoroughly inspected. Ask your dealer for a
manufacturer-sponsored certification program or have your car certified by
a qualified mechanic or inspection service.

Most used-car deals dont come with gap coverage. This is a special type
of coverage, normally offered on a new auto-lease, to cover the consumer if
the leased vehicle is lost, stolen or damaged. Typically, auto-insurance
policies cover only what your car is worth at the time of loss, not what
you still owe on the lease. The difference could run into thousands of
dollars. For peace of mind, do not enter into any used-car lease without
gap-coverage. Arrange it separately with either the lease dealer or your
auto-insurance company.

But leasing is not for everyone. You should take the time to learn about leasing, and be sure it’s right for you before making a decision.

What is Leasing

While a purchase loan is a method of financing the ownership of a vehicle, leasing is a method of financing the use of a vehicle for a specified time period. As much as it sounds like renting, leasing is different.

A lease is a formal contract with a leasing provider that allows you to drive the provider’s car and only pay for the portion of the vehicle’s value that you use up during the time you’re driving it. You agree to pay for insurance, licenses, taxes, repairs, and maintenance.

The leasing provider retains ownership and title to the vehicle throughout the lease. At lease-end you can simply return your vehicle to the provider, or you may purchase the vehicle and continue driving it.

Benefits of Leasing

Leasing offers the following benefits when compared to purchase loans:

- Lower monthly payments

- More car, more often

- Minimum or no down payment

- Smaller sales tax bite in most states

- No used-car headaches at end

Who Provides Leases

Contrary to popular belief, car dealers do not lease cars. Banks, credit unions, and financial divisions of major car manufacturers lease cars. Dealers simply act as agents of a leasing provider, such as Ford Motor Credit or GMAC, to arrange the lease on your behalf. Dealers typically work with more than one provider.

Once you’ve picked out the car you want, the dealer sells it to the leasing provider, who leases it you. It’s not necessary, nor is it always the best choice, to use the “captive” leasing company chosen for you by the dealer.

You can arrange for lease financing yourself with an independent leasing company, bank, or credit union after you’ve negotiated price with a dealer. Some lease providers even work with dealers to acquire vehicles for you at reduced prices, saving you money and the stress of negotiation.

Who Should Lease

Leasing makes sense for many automotive consumers, but not for others. Here’s how to determine if you are a good leasing candidate:

- Are you willing to trade ownership of your vehicle for lower monthly payments? Leasing is a great way to lower your payments or drive a better car for your money, but you must be comfortable with having no ownership of your vehicle, unless you purchase at lease-end.

- Can you stick with your lease until the end? Leases require you to commit to driving your vehicle for a specific number of months typically 24, 36, 48, or 60 months. If you feel your lifestyle, your finances, or simply your taste in cars may change significantly in future months, you may not be a good lease candidate. To end a lease early is usually troublesome and costly.

- Do you drive more than 15,000 miles annually? If your answer is yes, you may not be a good candidate because lease contracts are typically written with an annual mileage limit, typically 10,000-15,000 miles. If you drive more that the specified number of miles you will pay a fee for every mile over the limit.

- Do you typically keep your vehicles in good condition and change vehicles every few years? If so, you may be right for leasing. Lease providers require you to keep their vehicle maintained and repaired, with no more than normal wear and tear. If you don’t, you’ll be charged at the end of your lease.

- How is your credit rating? If you have a history of paying your bills on time and don’t have excessive debt, you are a good lease candidate. Otherwise, you may be required to make a large down payment and pay higher finance charges or, worse, be refused the opportunity to lease.

Shopping for a Lease

The most important element of a good lease deal is the price of the vehicle. Regardless of whether you buy or lease, you should always get the best possible price first. When leasing, this price becomes the capital cost, or “cap cost.” Prior loan balances and fees may be added. Rebates, discounts, down payments, and trade-in credit are subtracted. The lower the capital cost, the lower your monthly payment. This is the only element of a lease deal that a dealer directly controls.

The remaining elements of a lease money factor, residual value, and related fees are controlled by the lease provider and are not negotiable.

Since a lease is simply another form of financing, interest charges apply. These interest charges are known as “money factor.” Money factor is expressed as a very small number such as .00375, which is equivalent to 9% annual interest rate. Again, a small money factor results in lower monthly lease payments.

Residual value is an estimate of a vehicle’s wholesale value at the end of a lease term. The longer the lease, the smaller the residual value. Your lease payment is primarily determined by the difference between cap cost and residual value, which is the amount that the value of the vehicle depreciates during the lease. The higher the residual value, the lower the lease cost.

Sales tax may also be included in your monthly payment, depending on the state you live in.

You can easily calculate car lease payments, once you know the key factors, using this Lease Calculator by LeaseGuide.com.

Leasing Fees

There may be certain fees associated with your lease. The fees that lease providers charge vary both in kind and amount. One of the most common is an “acquisition fee”, which is an administrative charge for the work in initiating a lease. Another common fee is a disposition fee, usually charged at the end of your lease when you return your vehicle.

You may also be charged at the end of your lease for excessive mileage, damages, and unusual wear-and-tear.

At the beginning of your lease, you will be asked to pay the first month’s payment, a security deposit, a down payment, if any, and applicable miscellaneous fees associated with licensing a vehicle in your state. You will also be asked to show proof of insurance.

Driving Your Leased Vehicle

Your vehicle must be driven and cared for according to the terms specified in your lease contract. Generally, this means keeping the vehicle in good condition, using it for lawful purposes, maintaining insurance, and allowing it to be driven only by licensed drivers.

About the Author

Al Hearn is founder, owner, and operator of www.LeaseGuide.com, a source of information and advice for automotive consumers who are interested in car leasing. LeaseGuide.com has provided help to thousands of visitors since 1995.

Written by: Al Hearn