Long-Term Lease Car Facts You Want to Know

Posted by Pekin Insurance on Jan 06, 2016

Tired of trading in your car every 2 or 3 years? If you're considering a long-term lease car contract, here's what you need to know 

Tired of trading in and switching cars every 2-3 years? Maybe it's time to consider a long term lease car contract. Here are the facts you should know ahead of time

The decision to lease a car takes time and research. If you're sick of trading your car in every two to three years, it may be time to consider a long-term lease car contract. Your payments could be easier and more affordable, plus you'll have the peace of mind that comes with not having to worry about a new purchase anytime soon. 

If you've never leased a car before, it's important to know what to expect. Put together a list of questions for the salesperson and finance manager before you get to the dealership. Ask for all the facts upfront so no surprises come up after you sign the contract. 

Facts about long-term lease cars you should know 

To properly evaluate a lease deal, you have to ask the right questions, leaving no room for last-minute disclosures. If you prove to the salesperson that you know what you're talking about, he will have less wiggle room to glaze over details and sell you on the "emotional purchase."

It's best to treat the transaction as a business professional would. Scrutinize every detail and get the answers you need to make a decision. Here are the main points to focus on: 

Understand the residual value of the vehicle 

For long-term leases, it's very important to choose a car with a high residual value. Your payments will be based on how much the car will be worth when traded in. 

When you lease a vehicle, you are paying for the amount of value you use. Your payments will be based on the estimated value of the car once the lease contract is over. With a longer lease, more value will be lost. However, if you lease a high residual car, it will retain its value over time, saving you money in terms of payments and trade in. 

The lower the residual, the faster the car will depreciate in value, which will increase your monthly payments. The higher the residual, the more valuable your car will be at the end of the lease, making your payments lower. 

Receive the interest rate you deserve 

Negotiating a good interest rate is one of the most important factors when choosing a long-term lease car. When you ask a car dealer "What is my interest rate?" they may quote you a decimal number given by the leasing company. This is called the "money factor" in most lease agreements. 

Take that decimal number (perhaps 0.00125) and multiply it by 2,400. You will then get the real interest rate (in this case, three percent). Since the dealer doesn't control the money factor percentage (that is determined by the leasing company), you can ask the dealer to shop around for another company with better rates. 

Reveal all the hidden fees

Be a stickler about knowing all the fees that come with the lease contract. There are certain fees that will be impossible for the dealer to waive, but some can be negotiated. Either way, it's important to understand the full amount you will be paying for the lease. 

The typical fees included for a long-term lease car: 

  • Acquisition fee: charged by the leasing company to set up the lease agreement.
  • Disposition fee: assessed after the vehicle is returned.
  • Down payment: the amount you pay upfront (a higher down payment equals lower monthly payments).
  • Documentation fee: the state licensing fees for the vehicle. 
  • First month's payment: the first payment due at signing.

Know the miles covered by the lease 

Don't overlook this final point. The miles included in your lease are especially important for long-term lease cars. If you've seen advertisements showing low monthly payments and great deals, be cautious—it's usually because the dealer is offering mileage rates lower than the industry standard. Going over the mileage in your contract can be very expensive. 

The industry standard for a three-year lease agreement is 36,000 miles. If the lease agreement gives a lower number, you have a greater chance of going over and accruing charges. Some dealerships will charge up to 20 cents per mile after the agreed mileage is used up. As a long-term lessee, make sure you have an appropriate amount of mileage negotiated into your contract. 

Be prepared to enter the dealership and negotiate 

Car dealers may take advantage of customers who say "Yes!" to their first offer. Make sure you do the research and find the residual value of the vehicles you're interested in leasing. Consider what specific requirements you have. Mileage will be important, as well as negotiating any unnecessary fees. 

Finding the right car is important, but will you be protected from an accident? At Pekin Insurance, we take special care to provide families and individuals with affordable car insurance and quality coverage. Play it safe and contact us for more information.  

Do you have any experiences with leasing long-term? What have you learned during the process? Share your thoughts in the comments!


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