There's no two ways about it, brand new vehicles are appealing. They're beautifully designed, they have the newest features and capabilities, and they're factory warrantied. When it comes to new, the list of benefits seems to grow the longer you think about it. But, there's one caveat keeping a lot of folks away from brand new vehicles: financing. Luckily, that's not your only option. The top three ways people buy new cars is by paying cash, financing, and leasing.
Each of these options is different, and that's a good thing because there's lots of different kinds of customers as well. If you're asking yourself: "Should I lease a car?" you've come to the right place. Leasing is a good option for people who like to have a new car every two or three years and people who only want to pay for the portion of the vehicle you're using. If you're new to leasing, this blog is a great way to learn about the different components that affect the overall investment of a lease agreement.
What Is a New Car Lease?
You’ve likely heard a new car lease being compared to choosing to rent an apartment instead of buying a house, but I don’t know if that comparison quite cuts it. Under a lease agreement, you pay monthly payments throughout the duration of your agreement (typically two or three years).
During the lease term, you have certain requirements, like getting routine maintenance, avoiding damages, and staying within a mileage limit. The mileage limit can be customized to meet your specific driving requirements. It's a part of the negotiation process. If you're comparing leasing vs. buying a car, know that when you buy, these requirements are not part of your purchase agreement.
The parameters of your lease agreement are negotiable, and they do depend upon a few variables. The factors outlined below all work together to determine the overall financial investment of a lease agreement.
The monthly payment of your new car lease will depend upon the vehicle’s sale price. A lower sale price leads to a lower monthly payment, and vice versa.
The sale price represents how much the vehicle would cost purchased new, whereas the residual value is how much it’s estimated the vehicle will be worth at the end of your lease agreement. Since leasing a vehicle means you only pay for the portion of the vehicle you use, the difference in sale price and residual value directly influence your monthly payment.
Under a lease agreement, you’re allotted a certain number of miles for each year. You can negotiate a higher or lower allotment of miles before signing, customizing your agreement to meet your needs. You want to be cautioned against choosing an annual allotment that's too low. If you happen to drive more than what's in your agreement, expect to pay an overage fee.
At the end of your new car lease term, a disposition fee covers the costs of cleaning and selling the vehicle post-lease.
Benefits of Lease Vehicles
Entering into a lease agreement is another method for getting yourself into a new vehicle. With the average lease term of two or three years and the average vehicle purchase turn-around of six years, leasing allows drivers to access a new vehicle more often. Additionally, lease agreements typically end before the vehicle requires major services like new tires or engine repairs, lowering overall maintenance costs. If you're interested in a comparison of leasing vs. buying a car, check out our blog post on the topic.