Can A Car Lease Be Extended
Say you havent found a replacement vehicle, and you are at the end of your lease. Is there a way out? Yes, most lessors will gladly extend the lease on a month-to-month basis or for a fixed number of months. You will have to continue making the monthly payment. Also, in the case of a multi-month extension, you may have to sign another contract.
Why You Shouldnt Lease A Car
So, by now, hopefully you can see why leasing a car isnt a good move. But just in case youre still on the fence because the thought of driving around a brand-new Mercedes is just so hard to resist, here are a few more things to think about:
- Depreciation makes you lose money. All cars go down in value. Lets say a fancy new car loses $20,000 in value over a two-year period. If you lease it, that loss in value has to be factored into the lease payment or the leasing company loses money. And theyre not going to set themselves up to lose moneywhich means your bank account is going to take the hit.
- Its hard to get out of the lease early. You cant just return the car early if you get tired of it. Anyone who wants to break a car lease for any reason is in for a huge, expensive headache with a lot of other fees involved.
- Dealers make a ton of money on interest. If the financing comes from the dealer, they can easily mark up the interest rate by a small percentage that might seem insignificant to you, but it actually equals thousands more dollars in profit for them in the long run. In the industry, this is called dealer reserve, and its not cool.
What’s The Difference Between Buying And Leasing A Car
When you buy a car you either pay cash or get a car loan and take title to the vehicle. If you finance the car you build equity in the car over time. Automobiles are depreciating assets, however, and can sometimes depreciate faster than a person builds equity through payments.
When leasing a car you make lease payments but never take title to the vehicle or build equity. When the lease term is up you simply turn in the car.
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Can I Lease A Used Car
Lease-here, pay-here dealerships tend to lease used vehicles to people with bad credit but these leases are often filled with gotchas. Its generally best to avoid leasing from these types of dealers.
If You Like To Drive A New Car Every Few Years It Can Be An Attractive Option
When you need a vehicle to get around, you have two basic options: buying one or leasing one. Leasing a vehicle is similar to renting an apartment in that you make monthly payments while enjoying temporary use of the vehicle.
A lease may be an attractive option if you’re not interested in owning a car right now or you prefer to drive newer vehicles. Before entering into a leasing agreement, however, it’s important to understand how leases work and the restrictions they may impose.
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You Turn Your Cars Over Quickly
Whether or not it makes sense do so, some people like purchasing a new car every three to five years. It may be that youve resigned yourself to always having a monthly car payment, or that you prefer driving a late model car to avoid large repair expenses.
That can be an expensive consumption pattern if you do this with serial purchases. Each car that you buy will require a down payment, and experience rapid depreciation within the first five years. Leasing could be a better alternative.
If you can lease your vehicles, you can simply turn your car in the end of the lease term, and exchange it for a new one. Theres no hassle with selling or turning in your old vehicle or worrying about the depreciation on it.
Leasing is made to order for this situation. Naturally, it works better if the leases dont require capital cost reductions. You also have to be careful of mileage. Leases almost always come with a provision that limits the number of miles you can drive the vehicle. Its typically 12,000 to 15,000 miles, but it can be less. Make sure that you will have little trouble staying within these limits. The cost of exceeding them can more than cancel out any savings on the monthly payment.
How To Find A Great Deal On A Car Lease
Without a doubt, leasing a car is often a great way to lose money over the long haul. But, if youre considering a lease, there are ways to find leasing deals that can work in your favor.
The best car lease deals will be on vehicles that have too much supply relative to their demand. Since we are in the middle of a global pandemic and an economic recession, there are a lot of great lease deals on late 2019 and 2020 models of vehicles. These are vehicles that dealers need to move to stay profitable.Edmunds, a company that aggregates auto pricing information, keeps a list of vehicles that can be leased for less than $199 per month. As of the writing of this article, there are about a dozen vehicles on the list.
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Research New Car Inventory Of Your Make And Model At Three To Four Other Dealerships
Now you can start thinking about color, interior, and packages/options that you want. Request quotes for the vehicles you are interested in and ask the dealer to quote you the total drive-off, monthly payment after tax, as well as the MSRP, capitalized cost including the acquisition fee, money factor, and residual value. Specify that you only want to pay the first months payment and the registration fees as your down payment. Youll be using these new quotes for your negotiation with the dealer where you did your test drive.
Leasing Pro Tip: Avoid putting money towards capitalized cost reduction
Do not put any money down that goes towards capitalized cost reduction. Dealers often use larger down payments to make monthly payments appear lower. This is almost always not in the best interest of the customer. If the car gets stolen or totaled the day after you lease it, you will not get any of your down payment back. I recommend you do not take this risk.
How Many Miles Can You Put On A Leased Car Whos Responsible For The Maintenance
Leased vehicles often include routine service in the terms of the agreement, which can save buyers hundreds of dollars in oil changes and upkeep. But finance companies typically limit the mileage of leased vehicles to preserve the value of their vehicle and keep costs low.
Every mile over the contracted amounttypically 10,000 mileswill add to your final bill. Leases with 12,000 to 15,000 miles are available but will increase the monthly payment, which means that drivers with long commutes or frequent carpool runs may also want to consider buying rather than leasing. A move, or a change in commuting circumstances, can also mean big charges at the conclusion of the lease if youre over the limit.
Wear and tear is another hidden expense that often catches drivers off guard. Consumers may be charged for any dents, paint scratches, or stained interiors, so its important to keep your leased vehicle looking pristine. Customizations, popular for off-road and performance fans, are also off-limits, with many lease agreements requiring any customizations to be removed before lease return time.
While most new vehicles include bumper-to-bumper warranties long enough to last through most leases, lessees are still responsible for routine maintenance. Some brands also include a few years of routine maintenance in new-vehicle purchases, and that extends to lessees.
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What Is The Car Shortage And How Did It Happen
The 2020 car shortage is a pandemic that has been slowly gaining pace since the summer of 2012. However, it isn’t an outbreak as such because it hasn’t happened all at once, and there are still plenty of cars on the market for those who don’t want to lease.
However, it is predicted to escalate until 2020 slowly. At that point, there will be a worldwide shortage of cars, and dealerships will have a hard time keeping up with the demand.
You Can Choose To Buy A Car At The End Of The Lease Period
Some drivers fall in love with their leased cars and decide to buy them. Typically, you can buy the leased car at the end of the lease term. The price is generally the cars residual value plus processing fees required by the manufacturer. Buying a leased car for less than its current market value could be a good financial move.
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Should You Put Money Down On A Lease
Putting money down on a car lease isn’t typically required unless you have bad credit. If you aren’t required to make a down payment on a lease, you generally shouldn’t. … Whether you make a down payment or not, the overall amount you pay doesn’t change. However, putting money down does reduce your monthly payment.
When You Need A Vehicle For Your Business
From an accounting standpoint, leasing often works better than purchasing a car. As an expense, it matches up perfectly. Thats because you can generally deduct the actual amount of the lease payment .
Still another issue with the business use of a car is the fact that automobiles are depreciating assets. That means they steadily decline in value from the moment theyre purchased. Since a lease is a pay as you go arrangement, it does not have to be sold at the end of the term, and there is no depreciation recapture , which could create a tax liability.
Also, since leased vehicles can often be acquired with no down payment, there is no upfront capital investment. That could free up badly needed capital for other purposes.
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Will I Lose Money By Leasing A Car
When you compare a lease payment to a car payment, the lease payment is usually lower than the car payment. However, if you drive year in and year out for decades, leasing a car is the most expensive way to drive.
When you lease, you are constantly paying for depreciation on a new vehicle. Vehicles depreciate more in the first few years of driving than at any other time. Additionally, you never build equity in the vehicle, so youll always have a payment. Since lease payments are lower than loan payments, leasees may be tempted to upgrade to a nicer vehicle than they can truly afford. Leasing a sedan may cost just $300 per month, but buying it may cost $400 per month. If you can afford $400 per month, you may be tempted to spring for a luxury car lease rather than a sensible car purchase.
What Is A Leasing Mileage Cap
Even when you finance a car, the higher the mileage when you sell it or trade it in, the less its worth. The difference with leasing, the lessor factors in a specific number of miles when estimating depreciation. Over the course of a lease, the allowable mileage or mileage cap might average out to 10,000, 12,000, or 15,000 miles per year. Exceeding the mileage cap reduces the cars value at the end of the lease. This is why a leasing company will charge you a predetermined penalty for each mile over the cap. Be sure you know the per-mile penalty before signing the lease.
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Consider This Before Making A Lease Down Payment
Even though you can make a down payment on a lease, a cap cost reduction isnt always a good idea. A lower monthly payment may sound like a sweet deal, but consider this: what happens if your leased vehicle is stolen or totaled shortly after you get it?
Cap cost reductions are nonrefundable, so if you overpay upfront, youre not getting any of that money back if something happens to the car. Not to mention, since you dont own it, any money from insurance coverage goes directly to the lessor, not to you.
When Leasing A Car Could Make Sense
The one situation that leasing a car could make sense would be if you’re someone who simply must always be driving the latest car model. If, for example, you plan to upgrade cars every two years, depreciation could make traditional car ownership unrealistic. To be clear, switching to a new car every couple of years is going to be an expensive decision no matter how you slice it. But, for that unique situation, you may come out slightly ahead by leasing your vehicles vs. buying them.
Another situation is leasing a car for a business, where you can simply expense the monthly payments .
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Cons Of Leasing A Car During The Car Shortage
Leasing isn’t right for everyone because some drawbacks need to be considered before leaping.
The monthly payments are higher than for purchasing a car outright. This is because you’re paying overtime to eventually own the vehicle, while leasing means you can get your hands on it more quickly and don’t need to save up for that final purchase price.
You don’t own the car at the end of your lease period, so if you want to keep it, then expect to pay extra fees. There may also be mileage limits in place that will cause extra costs if they’re exceeded.
It can be difficult to determine what kind of payment plan makes the most sense. So be prepared and take some time before deciding whether or not leasing is right for you and which dealership deal will produce the best outcome.
You Like Driving A New Vehicle Every 3 Or 4 Years
Some people just love driving a brand new car every few years. Maybe they’re addicted to the new car scent, or perhaps they just want to project a certain image within their community.
There are also those who like to have the latest safety and technological innovations in the cars they drive. Getting a new car every 3 or 4 years guarantees you will enjoy the latest bells and whistles cars have to offer.
Finally, there are those who want a certain type of car right now, but know they may need a different kind just a few years down the road. For example, if you just got married, you may want a nice sleek sedan right now, but if you’re thinking about starting a family, you’re going to want a safer, roomier car in the near future.
Whatever your reason, if you’re certain that you’ll be getting a new car in 3 or 4 years, then leasing can be a great choice for you. If you were to finance a car with a typical 60-month loan, and decided you wanted to trade it in for a new one after 3 years – in many cases, you will still owe more money than what the car is worth due to depreciation. It’s much better to lease if this is what you intend to do.
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Leasing: What Does It Mean
Many people trip up when they try to distinguish between leasing and buying.
Think of it like renting a flat you make monthly payments for the privilege of staying in the flat, but the landlord receiving the payments is the legal owner of the property. Your monthly rent does not go towards buying you a share of the property. At the end of your tenancy, your landlord assumes full control of the flat again.
Paying for a car in full, actually purchasing it, means that you are the rightful owner of the vehicle in the eyes of the law. This stands regardless of whether you paid for the car straight away or after a series of installments.
Leasing is like renting. Your payments give you use of the car for a set period of time. When your contract ends, you have no legal hold over the car. You never actually own it.
Is Leasing Right For Me
Even though monthly lease payments are usually lower than car-loan payments, leasing may be more expensive than an auto loan in the long run.
When you take out a car loan, youll pay off the car over time. Driving a vehicle you own can reduce your long-term costs since youll no longer have a monthly payment once your car loan is paid off. But if you lease a car, you wont be building equity in a vehicle.
Depending on your desires and lifestyle, it can still make sense to lease instead of buy. Here are a few times to consider leasing.
- You want to drive new cars. If you exclusively lease new vehicles, youll enjoy the benefits of a new car without the hassle of selling a used vehicle each time you trade up.
- You dont want to own a car. If you view car ownership as a hassle, a lease may be a good choice for you. Lease agreements may include service contracts that can make dealing with maintenance and repairs more convenient.
- You need a car for a short time. Perhaps youre living somewhere short term and need a car. In that case, taking out a two-year lease may make more sense than buying and selling a car.
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