I’m thinking about getting a leased car but I owe on my current car loan. How do I get a good deal on a lease? What are residuals? What are buy backs? How do you buy your car once the lease is over if you don’t give it back? I’ve only ever bought cars and never leased because I don’t know how they work and not get ripped off. I’ve Googled but I still don’t get it.
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A lease is essentially a long term rental.
Your payments for the lease are essentially the depreciation of the vehicle during the term of your lease.
Your residual is the value of the vehicle at the end of the lease.
Once your lease is over, you are given the opportunity to return the car or you can choose to buy it.
Your buy out price is your residual value. Please note that your residual is set in stone the moment you sign your lease. There is no re-negotiating it once you’ve signed the paperwork.
Keep in mind that leasing to buy is rarely cheaper than buying right from the start. You have to compare your residual value to the cost of used cars on the market because that is essentially what you have, a used car.
Sometimes it works out that your residual is lower than comparable used cars, sometimes its higher.
Keep in mind that this is a used car at this point, so if you decide to finance it, you are getting used car rates, none of that 0-3% interest rates.
Finally, if you do decide to lease, do not put down a down payment. It may reduce your monthly costs but if you total that car, your payments are a wash.
Remember you don’t own this car, you don’t have equity in it technically. If you smash that car a week after taking it, you are only out whatever money you put into it, including your down payment.
This is one of the nice parts about leasing, if something happens to that car, you can wash your hands of it and get another one, rather than being on the hook for the rest of your loan.
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