Reading the Fine Print on a Lease

Reading the Fine Print on a Lease

Monthly payments are just the beginning

Randall McCathren, executive vice president of Bank Lease Consultants, Inc., a consulting firm that tracks trends in auto lease financing, advises that, in addition to monthly payment, which is the main shopping comparison consumers use, potential lessees should consider these variables:

Capitalized costs: Don’t lease the car without getting it in writing. Leasing has hundreds of dollars of costs not found in loans (such as contingent liability insurance and credit insurance) so expect to pay at least that much more than for a purchase. The other benefits or leasing may also be worth a higher purchase price, particularly a highly subsidized rate, but remember that capitalized cost can be negotiated just like the selling price of the vehicle.

Residual Value: This is the predicted value of the car at the end of the lease term, and it’s guaranteed. Recognize that the higher it is, the more likely it is that the lessor will lose money at the end. If you don’t know if the lessor is in the business long-term or is ethical, beware of high residual values.

Permitted mileage: The standard is 15,000 miles per year. If you expect to drive less, you should be able to negotiate a lower monthly lease payment.

Early termination right and charge: Look for a lease that permits early termination and has a constant yield (where interest is earned at the same rate every month and is pre-calculated), at least after the first 12 months.

Residential buildings, Manhattan. Photo by Elena.

Purchase option: Look for a residual value fixed-price purchase option or, if you can find it, the lesser of the wholesale value and the residual value.

Excess mileage charge: Make sure it is reasonable if you drive extra miles. For a car worth up $20,000, you shouldn’t pay more than a minimum per extra mile. For a car worth $20,000 to $40,000, excess mileage should cost a little more, and for cars above $40,00, the prices are higher.

Term: Don’t sign a lease for longer than you plan to drive the car. The guaranteed value only benefits you at the end of the term. Never plan to terminate early. If you can’t afford payments on the shorter term, choose a less expensive car.

Liability after casualty loss: Ask if the lease includes “gap insurance”. If not, don’t pay more than a few hundred dollars for coverage and consider self-insuring the risk.

Choosing an Insurer

Compare rates from the biggest

If you live in a non-competitive insurance state, rates are controlled by an insurance commission or rating bureau, and all insurers are required to charge the same premium. However, all rates are competitive and can vary dramatically.

One thing you should factor into your evaluation of a perspective insurer is its reputation when it comes to the speedy processing of claims. To do so, check with the Better Business Bureau or local repair or body shops to find out which insurers have the best and worst reputation.

The largest auto offer different rates and to make sure you are getting the most competitive rates, call a few of them for quotes and compare them with the offerings of smaller companies and independent agents.

The Other Car Payment Not to Forget

Some are far better than others when it comes to savings

Generally, the more expensive a car is, the more it costs to insure. That’s because higher-priced cars cost more to repair and are more likely to be targeted by thieves. Thus a car rated average will cost more to insure than a car also rated average but less high-priced. But there are exceptions.