4 Facts to Know before Leasing a Car

When you are considering leasing a car there are many things that you need to understand. A lease agreement is a fairly complicated financial document. Therefore, you need to make sure that you understand what you are agreeing to. Anytime you agree to purchase or lease a car, you are making a big financial commitment. You need to make sure that everything makes sense. Here are a few facts that you need to know before leasing a car.

1. You Are Paying For Depreciation

When you lease a car, you are basically paying for a portion of the depreciation of the car. A typical lease term lasts for three years. Therefore, you are paying for the portion of the depreciation that goes on during those three years. The car dealer still owns the car and they are taking it back at the end of your lease. Therefore, they need to be compensated for the depreciation that they are giving up. The value of the car at the end of the lease will be estimated at the beginning of the lease. This way, they know how much to charge you over the course of the lease.

2. Money Factor

When you are negotiating your lease, you will hear the term money factor thrown around. This term is very similar to interest when you buy a car. The money factor varies depending on the dealer and your credit. Therefore, the lower the money factor, the less money you will pay each month to the car dealer. 

3. Return the Car

When your lease is up, you have a couple different options in front of you. Once you are done with the lease, you can simply turn in the car to the dealer and move on. You are under no obligation to do anything more. You can drive the car back to the dealership, hand them the keys and you are officially done. 

Besides returning the car, you can also opt to keep it. Most leases allow you to buy the car once you are done with the lease. The price that you can buy it for is usually determined before you set up the lease. If you do decide to take this option, you will almost always pay more for the car than if you would have just purchased it. Therefore, if you are planning on doing this on the front end, you might as well just buy the car. 

4. Down Payment

With a lease, the down payment can be negotiable. Depending on the dealer and your credit score, you might be able to eliminate the down payment all together. If you decide not to make a down payment, your monthly payment will be higher. Therefore, if you need to secure a lower monthly payment, you will be better off to make a higher down payment. Since you are not actually buying anything, the down payment is just there to buy down your payment. 

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