With the release of the 39th edition of The Car Book—now available online—we’re sharing some of our best tips for car buying and maintaining your vehicle after you buy. The Car Book 2019 provides today’s car buyer with in-depth ratings of the 2019 vehicles, The Car Book’s unique crash test ratings, comparative complaint ratings, and all of the information needed to make a smart, safe and informed vehicle purchase. For online users only, the site also includes over 1,000 used car ratings going back five years.
Did you know that about 25% of new car transactions are actually leases? Unfortunately, most of us who lease new cars don’t realize that, in spite of the low monthly payments, leasing often costs more than buying, depending on the terms of your lease. Remember, when you buy a car, you own an asset, but leasing leaves you with nothing except all the headaches and responsibilities of car ownership with none of the benefits. For example, in addition to the monthly lease fee, you’ll want to budget for maintenance, insurance, and repairs. (On the other hand, don’t forget it’s a new car and still under that new car warranty!) When it comes to time to turn the car in, remember that it needs to be in top shape–otherwise you’ll have to pay for repairs, clean up, or body work. Finally, don’t forget that lease agreements are very difficult and expensive to end early! However, if you think leasing a new car instead of buying it is right for you and your family, we’ve got some tips to save you money:
- Capitalized Cost is the price of the car on which the lease is based. Negotiate this as if you were buying the car. Capitalized Cost Reduction is your down payment.
- Know the make and model of the vehicle you want. Tell the agent exactly how you want the car equipped. You don’t have to pay for options you don’t request. Decide in advance how long you will keep the car.
- Find out the price of the options on which the lease is based. Typically, they will be the full retail price. Their cost can be negotiated (albeit with some difficulty) before you settle on the monthly payment.
- Find out how much you are required to pay at delivery. Most leases require at least the first month’s payment. Others have a security deposit, registration fees, or other “hidden costs.” When shopping around make sure price quotes include security deposit and taxes–sales tax, monthly use tax, or gross receipt tax. Ask how the length of the lease affects your monthly cost.
- Find out how the lease price was predetermined. Lease prices are generally based on the manufacturer’s suggested retail price, less the predetermined residual value. (Residual value is how much the seller expects the vehicle to be worth at the end of the lease). The best lease values are cars with a high expected residual value. To protect themselves, leasers tend to underestimate residual value, but there is little you can do about this estimate.
- Find out the annual mileage limit. Don’t accept a contract with a lower limit than you need. Most standard contracts allow 15,000 to 18,000 miles per year. If you go under the allowance one year, you can go over it the next. Watch out for excess mileage fees. If you go over, you’ll get charged per mile.
- Avoid “capitalized cost reduction” or “equity leases.” Here the leaser offers to lower the monthly payment by asking you for more money up front–in other words, a down payment.
- Ask about early termination. Between 30 and 40 % of two-year leases are terminated early and 40-60 % of four year leases terminate early–and this means expensive early termination fees. If you terminate the lease before it is up, what are the financial penalties? Typically, they are very high, so watch out. Ask the dealer exactly what you would owe at the end of each year if you wanted out of the lease. Remember, if your car is stolen, the lease will typically be terminated. While your insurance should cover the value of the car, you still may owe additional amounts per your lease contract.
- Avoid maintenance contracts. Getting work done privately is cheaper in the long run. And don’t forget, this is a new car with standard warranty.
- Arrange for your own insurance. By shopping around, you can generally find less expensive insurance than what’s offered by the lesser.
- Ask how quickly you can expect delivery. If your agent can’t deliver in a reasonable time, maybe he or she can’t meet the price quoted.
- Retain your option to buy the car at the end of the lease at a predetermined price. The price should equal the residual value; if it is more than the leaser is trying to make an additional profit. Regardless of how the end-of-lease value is determined, if you want the car, make an offer based on the current “Blue Book” valuation at the end of the lease.
- If all this haggling over a lease sounds a bit complicated, check out LeaseWise. This service from the non-profit Center for the Study of Services makes dealers bid for your lease, allowing you to lease from the lowest bidder or use the report as leverage with another dealer. This service costs $350.
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