Leasing a car is a serious move. There are contracts that legally bind you for a fixed term and making sure that you are ready and make the monthly lease payments should be on top of your priority list before considering anything else.
Below we take a look at 6 things you should consider before you enter any agreement with a leasing company. Always ensure you have everything you need to know about leasing a car before you do it.
1. Consider if you prefer buying or leasing
It’s easy to confuse leasing a car with a car loan but these two options are not the same and can come at a substantial difference in cost.
It comes down to a personal preference and availability of finances. Leasing gives you the usability of the vehicle whereas a car loan would mean that you take ownership of the vehicle which means you gain an asset.
The unfortunate side of leasing is the lack of equity build-up. If you buy the car through a finance loan then you have the benefit of building equity.
Paying low monthly instalments on a car can seem favourable however this may turn out to be rather pricey in the long run.
2. Consider the car model that works for you
Take a moment to consider the make and model of car that best suits your needs and lifestyle. If you don’t need the best of the best then choose something that doesn’t break the bank.
Family size is also a consideration to take into account as a bigger family will mean looking into a vehicle with more space and possibly better safety features.
Think about the nature of use. Are you wanting to take the car on long journeys or is it simply to get to work and back? Smaller cars are a far better choice for commuting in cities and fuel economy could be a big deciding factor.
3. Check your credit score
A credit score is a major consideration when leasing companies consider whether to grant you a lease or not. Typically only people with good credit scores will have the option to pick up a new car.
Car leases with a lower credit score might result in high monthly payments.
4. How many Km does the lease include?
Many lease contracts have a limit to the number of Kilometers that the car can be driven to prevent excessive usage of the vehicle.
Exceeding the allocated amount will result in extra charges. These can add up so be aware of the limits in the lease period.
If you know that you are going to be using the car frequently for long trips then request that your lease has a higher permitted amount of Kilometers.
5. Don’t forget to consider interest
The interest rate on a lease can be the break or make of the factor for many people. Monthly payments can sink you financially if the interest is high.
Always look for the deal with the lowest interest rate to ensure that you are not paying back excessive amounts of your hard-earned cash.
6. Choose the lease company wisely
If it is your first time leasing a vehicle then this will all be new to you. Understand the terms and conditions well before signing anything. It’s good practice to consider multiple vendors for a new car lease to ensure you get the lowest monthly lease payment.
Search for a closed lease contract as opposed to an open one. With a closed lease term, there are no additional costs involved when handing back the vehicle.
End of the lease expenses can be costly so check your contract thoroughly for any hidden costs.
Maintenance costs are a consideration that needs to be taken into account. Simply having a lease does not mean that you are not liable or responsible for paying maintenance.
In the case of excessive wear and tear of the vehicle, you will need to foot the bill at the end of the term.
The terms of general wear and tear in a car lease can vary from dealer to dealer. This makes checking the terms and conditions when leasing a car that much more important.
Choose a dealer that offers you the most favourable contract and always check for the warranty on the car and what it entails.
If for any reason you think you might need to terminate the lease early, make it a priority to check what penalties you might incur before signing.
7. Have gap insurance
In the case of most lease contracts, there is a provision for gap insurance. All this means is that there is insurance to cover anything that traditional insurance does not hence the term ‘gap.’
To go a little deeper the ‘gap’ is the difference in value between what remainder you owe on the lease and the value of the vehicle. It provides protection to whoever leases the car in the event that the car is totalled.
The gap insurance will pay the difference between the cash value of the car and the remaining balance on the lease. This is a huge lifesaver in the event of an accident.
Always ensure that your lease agreement includes gap insurance.
8. Consider the cost of depreciation
Vehicles depreciate from the moment they leave the dealer. The difference between the residual value of the vehicle at the end of the lease and the value of the car when it is new is the way in which depreciation is calculated.
As the lessee of the vehicle, this is a charge that you will incur. Keeping that in mind, always look for a car that depreciates at the slowest possible rate.
9. Get an estimate of the residual value of the car
The residual value is simply the value of the vehicle at the end of the lease term. The higher this value is relative to the new price at the dealer makes it all the more favourable to lease.
The depreciation cost is lower with cars with a higher residual value so keep an eye out for this detail when considering leasing.
Compare prices and enquire with experts to make an educated decision before you sign the contract.