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Pricing & Payment

Car Affordability Calculator Tip

MSRP is the suggested retail price provided by manufacturers. However, know that you can always negotiate the vehicle price down from the MSRP price to reduce your overall monthly lease payment.

Down payment isn’t always required on a lease, and in cases where your vehicle is totaled in an accident during the first few months, your down payment would be lost.

What to Consider Before You Get a Lease

Leasing a car is like having a long-term rental car. You pay a low monthly fee without having to spend too much upfront to buy the car, and you get to drive it around throughout the length of your rental lease term. When your lease term ends—assuming you have a walk-away lease and kept the vehicle in great condition, you can simply return the vehicle with no obligations. While leasing a car poses minimal risk in the short term, it isn’t always the best financial decision in the long term. If you’re considering getting a car lease, make sure you do your due diligence and consider the following questions.

1. What are your driving needs?

What are you getting a car for? Do you need a reliable way to commute to work everyday? Or do you need to drop off and pick up your kids for school and all their extracurricular activities? Have you considered what car is best suited for your lifestyle? Leasing will give you the excitement of having a new car, but before you get carried away with the new car smell, make sure you are leasing the right car that matches your day to day needs. Try to lease a car that have the least depreciation, as your monthly lease payments will be dependent on the residual value of the vehicle.

Cars that Depreciate the Least (and have the best resale value)
Cars that Depreciate the Least (and have the best resale value)
There are some cars out there that offer an impressive return—aka you won’t lose too much money—on your investment should you decide not to keep it. Read More...

2. How much do you drive?

Standard lease agreements usually come with 12,000 miles allowed per year. If you go over that allotted mileage, you’ll be charged an excess mileage fee per your agreed upon lease terms. Excess mileage cost can add up as is usually between 15 to 25 cents per every mile in excess. If you have a long daily commute or you’re an avid roadtripper, you may want to negotiate additional mileage for your lease term, or consider buying a gently used car with better fuel efficiency. If you know how to look, a lightly used car would be a great deal as the original owner already absorbed the depreciation when they purchased it new.

3. How much monthly payment can you afford?

The lower the better, right? In general speaking, yes. But before you jump to conclusion, factor in your actual day to day needs and long term plans. Do you foresee the need for having a car beyond the next 2-3 years? Compare your auto loan payment options vs a lease. While a monthly payment on a lease would usually be lower compared to new car loan, you might be able to afford more car and get a better deal with a used car loan. Do you know what car you want? Use our Auto Loan Calculator to see what your monthly and down payments would be.

Pros and Cons on Lease vs Buy

One of the most important aspect to consider is whether you should buy or lease. Leasing is attractive for someone who always wants a new car. However, there are also perks of ownership and additional flexibility when the car is actually yours.

LeasingBuying
Upfront CostDown payment (optional), first month’s payment, registration, taxes, title and feesDown payment, registration, taxes, title and fees
Monthly PaymentUsually lower compare to a monthly loan payment because you are only paying the depreciation cost of the vehicle and interest chargesUsually higher than a lease payment, because your total loan amount is likely higher, plus interest and other finance charges
Driving and usageLimited mileage per year, can be negotiated but usually between 12,000 - 15,000 miles per year. Excess wear and tear will most likely incur penalty charges as well.You can drive as much as you like and not worry about the condition of it as much. However mileage and condition will impact the vehicle’s future resale value.
CustomizationNot allowed on a lease vehicle.Free to do whatever you like.
OwnershipAt the end of a lease term, you can choose to buyout the vehicle or return it, but you don’t own the vehicle unless you purchase.It’s your baby! You can keep the car for as long as you like.
Glossary
A Glossary of Car Lease Related Terms You Should Know
Buy Rate
The rate that a car dealer gets financing. This rate is usually beefed up for the consumer by as much as 1% (the Sell Rate). The dealer keeps the difference between the Buy Rate and the Sell Rate. This is known as a Spread. Also known as Bump or Bump Rate.
Buyout Price
The cost of buying a car at the end of the lease term, which is usually the residual value of the vehicle. You need to look closely at the costs of buying the car outright versus the cost of purchasing after the lease is up. Dealers can offer a low residual/low money factor lease but it’s rare.
Capitalized Cost or Net Capitalized Cost
This is the total amount (including car cost and any options) that you will be financing. The rule of thumb is that the lower this number is, the less your monthly payment will be.
Cap Cost Reduction
In leasing or buying this is a specific amount of money you put down on a car to reduce the payments over the life of the loan. It is usually put down up front as cash but can be put down as the value of a trade in or rebate amount. Sometimes cap cost reductions are required to get a specific lease term or interest rate. This term can apply to either new or used cars.
Closed-Ended Lease or Walk-Away Lease
At the end of a lease you have the option to buy the car at a set and agreed upon price or walk away without any kind of obligation or liability. It’s always a good idea to verify that your lease is closed-ended.
Cost of Funds or Financing Costs
The APR, money factor, or rent charge. This is the cost for using a bank’s money to get the car. This is a term that is occasionally used—but not often.
Dealer Installed Option
Optional equipment installed by the dealer, not the manufacturer or an aftermarket shop. Dealer installed options could include things like undercoating, fabric protection, some appearance accessories, performance accessories. Many of these things are added on once the negotiation of base price has taken place. Be careful of these because some are unnecessary, and many can be negotiated.
Dealer Incentives
These are offers from the manufacturers, passed through to dealers to get sales going and encourage specific makes and models to sell. These are usually passed through to the customer. Be sure to ask if there are any dealer incentives available on cars you are interested in purchasing.
Default
Not making your payments or abiding by the terms of the lease or buying agreement. If you default on your loan your credit will take a major hit. You want to avoid going into default on any financial obligation you make. There are also Default Fees that can be charged to your account if you don’t make your payments as the lease or loan stipulate.
Depreciation
The decrease of a vehicle’s market value over time.
Down Payment
The money you put down up-front to reduce the amount you are financing. This can reduce your monthly payments. Usually a typical down payment is roughly 20% of the sale price of the car.
Equity
The value left in a used vehicle after subtracting the remaining loan balance from its market value.
Equity Lease or Open End Lease
A lease where you must buy the vehicle at the end of the lease. It’s not a common type of lease but they do exist. In an open-ended lease there sometimes is an amount that the lessee will pay at the end of the lease that covers the difference between the vehicle’s residual value and the actual market value. This is known as an End of Lease Payment.
Excess Mileage Charge
This applies if you’re leasing a vehicle. If you go over the mileage agreed to on your lease (typically 10,000/year, 12,000/yr, or 15,000/yr) you’ll have to pay a per-mile fee for the number of miles you go over. To avoid this, be realistic about how many miles you’ll put on a leased car per year.
Excess Wear Charge
A fee paid at the close of a lease if the car is returned with lots of damage or modifications. Things you could be charged for include tinted windows, different wheels, dings and dents, bad smells in the interior, etc.
Fair Market Value
The value of a vehicle on the market in its current condition. Use things like TrueCar, Edmunds, and Kelley Blue Book to determine the Fair Market Value of a new or used car.
Fixed (Guaranteed) Residual
A set price that is agreed to at the start of a lease. This is a price you can purchase the car for, at the end of the lease. Be careful of deals like this as it’s not often that it works out in a buyer’s favor.
Lease
This is a lot like a long-term rental. It’s a fixed, long-term contract which allows you to use the car without owning it. You can use the vehicle for a set period of time, or agreed number of miles, and are required to make payments to the lender for the use of the car. At the culmination of the lease you can either buy the car or return it to the dealer depending on the terms of the agreement. You pay for the portion of the vehicle’s life that you use, which usually means that leases are more affordable than buying a car.
Lease Extension
An agreement between the buyer and seller to continue the lease beyond the original terms without changing the monthly payment.
Lease Payment
The amount you are required, by contract, to pay to the lender monthly for the use of the vehicle. Usually this number is the sum of the rent charge, depreciation of the vehicle plus applicable taxes. To calculate the lease payment you’ll need the MSRP (sticker price or agreed upon price), the money factor (or interest rate), lease term, and the residual value of the car.
Lessee
The person leasing the car.
Lessor
The financing company or bank that loans out the money for the lease. This is the company or entity that actually owns the car even when you are leasing it.
Lock or Lock in
Getting a commitment from the lender to hold specific terms of a loan or lease for a set amount of time, before committing to a sale or lease. Usually a lock lasts from the time that you apply for the loan until you sign the paperwork and get the money you borrowed.
Mileage Limit/Allowance
The max distance you can drive your leased vehicle before incurring additional charges. Those charges are usually calculated as a price per mile.
Money Factor
See also Lease Payment and APR. This is essentially an annual percentage rate for a lease. It usually makes an appearance in the form of a small decimal number. To figure out what the interest rate is, multiply the decimal number by 24. For example if you see a money factor of 0.0025 multiply it by 24 to get 6%. Watch out because sometimes dealers write money factors as a larger decimal figure. Say you see a money factor of 2.5—that is in fact a money factor of 0.0025 or 6%. Dealers do this to disguise them as low interest rates.
MSRP or Manufacturer’s Suggested Retail Price
The suggested selling price of the vehicle found on the Monroney or window sticker. This does not usually include destination charges, optional equipment or taxes.
Negative Equity
When the amount owed on a vehicle is more than its market value.
Open End Lease
Usually only offered to fleets or companies that are buying or leasing a large number of vehicles, this kind of lease makes you responsible for the difference between the residual and the fair market value of the vehicle at the end of the lease.
Purchase Option
The right to purchase a car at the end of a lease or loan for a set cost. This can be negotiated.
Residual Value
The estimated remaining value of a car when it comes back to a dealer or to the market. This number is used to calculate the monthly payment and the price you can buy the car at, at the end of the lease.
Truth in Leasing
The Consumer Leasing Act of 1976 which was designed to protect consumes from inadequate or misleading lease information.
Walk-Away Lease
A lease that gives the lessee the option to buy or walk away without liability at the end of the lease term. Though it’s the most common kind of lease, always verify that your lease is a walk-away lease.

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