After a Divorce, Six Things to Consider Before Deciding to Lease a New Car

As you adapt to the major life changes associated with a divorce, you may determine that you want or need to acquire a new car. Your main options include buying a new car, buying a used car, or leasing a car. Choosing the right option will depend on your financial situation, credit score, driving habits and needs.

Once you start shopping around, you’ll discover what appear to be attractive vehicle leasing offers, with low monthly payments. Don’t be fooled! Before you opt to lease, keep in mind that from a financial standpoint, this is not the perfect option, especially if your financial situation or driving needs will be changing dramatically in the next three to five years.

A vehicle lease is a legal agreement between the lessor and the lessee (potentially you) related to the use of a specific vehicle. A lease involves a detailed contract that specifies the terms and limitations of that use, the length of the agreement, and the monthly payment for use of that vehicle. It’s much more of a complex process than renting a car from Hertz for the weekend. As the lessee, you’ll be taking responsibility for the vehicle for a period of 24, 36, 48 or 60 months (sometimes longer).

For this reason, you should not even consider leasing if you have poor credit or an unstable income that won’t allow you to make on-time monthly payments for the duration of the lease period. When you lease a vehicle, you have absolutely no ownership of it whatsoever. The vehicle must be returned to the lessor at the end of the lease period. It’s the leasing company that purchases the vehicle on the lessee’s behalf and retains ownership of it. While you’re in possession of the vehicle, however, you must pay to maintain it, plus pay for the insurance.

Leasing a vehicle is best for someone with good credit, consistent driving habits that involves traveling relatively few miles, and who has a financially stable lifestyle. It can be extremely costly to end a lease early,” explained Al Hearn, editor-in-chief of LeaseGuide.com. Once you accept a leased vehicle and have signed the leasing agreement, you’re committing to keep that exact vehicle and make all of the monthly payments associated with the lease.”

Details about your ongoing payments will be reported to the credit bureaus, appear on your credit report, and impact your credit score, just as financing a vehicle’s purchase would. In almost every situation, the monthly payment associated with leasing a vehicle is lower than the monthly payment related to buying an identical vehicle and financing the purchase. There are, however, additional costs involved.

Before signing the lease there are several important factors to consider that impact your costs, including:
1. The Capitalized Cost” (also referred to as Cap Cost”) of the vehicle you’ll be leasing.

Just as you would when buying a new car, you’ll want to negotiate with the dealership to get the lowest price possible for the vehicle being leased. The lessor will be purchasing the vehicle on your behalf for the price you negotiate. This will impact your monthly payment.
2. The vehicle’s Residual Value.”

This represents the difference between the purchase price of the vehicle and the anticipated depreciated value of the now used vehicle once the lease period is over. This is determined at the beginning of the lease and is used to help calculate how much your monthly payments will be. Every vehicle make and model depreciates at a different rate. For example, two vehicles might start off costing $24,000. After three years, however, one might be worth $20,000, while the other might be valued at only $18,500. As the lessee, you want to choose a car that maintains as much of its original value as possible during the lease period in order to keep your costs and monthly payment down. Luxury cars, like Mercedes-Benz, BMW, Lexus and Acrua, tend to hold their value better. Toyotas and Hondas are also known for maintaining their value,” added Hearn.

3. The Money Factor.”

This is the figure that represents the interest rate you’ll be charged for the lease. It’s also used to calculate your monthly payment. The money factor is the interest rate percentage divided by 2,400. The lower your interest rate, the better. At the time you sign the lease, before taking possession of the vehicle, you will be required to make a down payment, pay an acquisition fee, plus be responsible for a variety of other fees and taxes. (This is the amount that’s ‘due upon signing.’)These fees can add up to several thousand dollars. Most of these costs can’t be negotiated down. Make sure you can afford this initial payment. Your insurance fees will not be calculated into this amount.

During the time you’re in possession of the leased vehicle, you are responsible for all basic maintenance fees (oil changes, etc.), insurance and taxes relating to it. Since not all cars are equal in quality, you’ll keep costs down by leasing a high-quality vehicle. Make sure you can afford the core monthly payment, plus insurance, gas, maintenance, parking, and taxes. The mileage allowance permitted under the terms of the lease. Most leases include only 10,000 to 15,000 miles per year. You will then be charged a pre-set fee per mile beyond that, which will add up quickly if you’re not careful. Extra miles can cost anywhere from 25 to 75 cents each. Thus, if you typically drive more than what’s allowed based on the terms of the lease, leasing a vehicle is not the best option for you.

One of the biggest mistakes lessees make is not accurately anticipating their driving habits and needs. Thus, at the end of the lease, they wind up with a huge excess mileage bill. In addition to paying for excessive mileage, lessees are responsible for excessive wear and tear on the vehicle. It’s easy to wind up with a significant bill at the end of the lease period that you weren’t anticipating,” added Hearn. Make sure your driving habits are consistent with the terms of the lease, or it can get very expensive. Don’t just focus on the amount of the monthly payment.”

As the lessee, when the lease period for the vehicle ends, the vehicle must be returned in the same configuration it was originally acquired, with no modifications. You are not allowed to customize the vehicle in any way, or you will have to pay to remove those modifications or accessories later. Aside from negotiating the price of the vehicle with the dealership, the lessee typically can’t negotiate the terms of the lease itself. Understand that the process for leasing a vehicle is significantly different than purchasing one, even though both are done through the same dealership.

Mark Perleberg, lead automotive expert at NADAguides.com and co-host of Car and Driver Radio, suggests, Never rush the leasing process. Take the time needed to properly shop around for the right vehicle for you, test drive it, and then negotiate your best deal. When you’re at the dealership, focus on the task at hand and avoid distractions. Make sure you fully understand the terms of the lease before signing it. Also, don’t expect to visit a dealership during your lunch hour and be able to drive off the lot with a leased vehicle in one quick visit.”

FOR MORE INFORMATION
The LeaseGuide.com website is an excellent resource for learning about the leasing process.

To calculate all of the costs associated with leasing a car, versus purchasing one, use a free online calculator and comparison tool, like the one found at www.leaseguide.com/calc

 

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