The knee-jerk response to the question of leasing a car is almost an automatic no. For most people, the best bet is to save the cash to outright purchase the vehicle you will be driving. This is the most financially sound method of acquiring a vehicle, but may not be right for everyone. Taking a long term loan may very well be the WORST method of acquiring a vehicle, as it severely impairs your liquid capital for years to come. For some people, especially those who feel they must have the latest and greatest, or live in an area where vehicle maintenance costs and disposal costs are super high, leasing may be a viable alternative. As with all life situations, it is best to educate yourself before launching any potentially expensive enterprise, such as buying or leasing a car. This article, by Jimmy Sturo, should help you understand the ins and outs of leasing a car.
Car Lease Prices
Leasing a car means paying for the usage of the car during the period leased and not for the car itself. Leasing becomes a viable option for people who do not care to own a car and like to change their cars every few years when new models hit the market. The person who leases the car is called the lessee and the company that leases the car is called the lessor.
The entire procedure of leasing a car revolves around the concept of depreciation that a car suffers when the lessee is using it. When a car is leased, the primary step is to determine the car lease price. This price is different from the price that is present on the car’s sticker. The car’s sticker has the price that is suggested by the manufacturer, called the suggested retail price (MSRP). The lease price of the car would be negotiable on the MSRP.
It is in the best interests of the person wishing to lease the car to negotiate for a price less than the MSRP. This is definitely possible and very normal. Leasing companies buy the car from the dealer at prices below the MSRP, and justifiable haggling is allowed. However, some leasing companies are quite adamant about negotiating the car lease prices. They might also advertise that their car lease price is the market price of the car. This is how they earn their profit, so it is necessary to shop around a little and find out which leasing company would provide the best car lease price.
The car lease price determines the residual cost of the car after depreciation is taken into account. Depreciation is estimated very high in the first year– up to 30%, and it progressively decreases by halves each year. A lower car lease price would definitely mean a lower depreciation percentage and the residual price would be higher. The amount that the lessee will have to pay every month contains two parts – the depreciation value and the interest on the car lease price. Interest is calculated by using a number called the money factor. Money factor when multiplied by 2400 gives the interest rate of the vehicle.
The car lease price is not the only price that the lessee has to pay when leasing. There is also a refundable deposit that has to be paid. Its amount depends on which car is leased. Sales taxes must also be paid. A majority of states also apply sales tax, and the lessee has to make the first monthly payment before taking the car.
Car lease prices are the lessor’s prerogative, but they are the lessee’s privilege. Seeking multiple quotes from many leasing companies before making a final decision.