How about a Car Leasing Guide?
At first glance, renting a car seems like a good idea. After all, you can get more of the car with the same monthly financing payment. Who wouldn’t want that? Well, there’s more to the trade-off between financing and car leasing than just buying more cars for your money. But it’s the main reason people rent.
One of the other reasons people rent a car is the smell of a new car. Some people just like the idea of driving a new car every two or three years. Leasing also simplifies writing off your vehicle as a business expense at tax time.
Another reason for car leasing is that automakers sometimes offer very thoughtful lease agreements that are not available to those financing the purchase. The repeat renter also always has a car that is normally under the factory’s warranty. Finally, when the lease expires, you don’t have to negotiate for value or go through the sales process. All you have to do is hand over the keys and go. Simple, right? Well, usually. Read on.
What is a car rental?
A car lease is basically a long-term lease for several months. Unlike financing a car purchase on the basis that you end up owning it, a lease is like a long-term lease. You are still locked into a contract for a number of months and a monthly payment for the deal.
However, instead of paying for a loan and building an asset, you are paying for the estimated lost value (depreciation) of the car over the life of the lease. You have to pay for it, plus interest on the money you borrowed for the charter.
What are the key lease terms I need to know?
Purchase fee: This is the lessor’s cost for setting up the lease. The cost can vary widely and can be as high as $1,000. Before signing any lease, ask what is included in the purchase fee. The fees you might see include destination fees and documentation fees for handling rental ownership, license plates, and car registrations. It is solid and cannot be negotiated away. However, it can be converted into monthly payments.
Allowed mileage: Also called the “mileage cap,” this is the average number of miles you can drive per year. The lessor will fine you for every mile over.
Capitalized cost: This is the agreed selling price of the vehicle plus any fees included in the monthly payments.
Capitalized cost-cutting: Also called capitalized cost-cutting, is any factor that reduces the cost of capitalization. It usually takes the form of a down payment or a trade-in subsidy.
Depreciation: The lost value of a vehicle during the lease term is depreciation.
Disposal fee: This is the cost of cleaning and disposing of your car at the end of the lease period. If you buy this car or rent another car from the same agency, you can negotiate to sell it.
Start-up fee: Any fee and deposit required to start a lease. Don’t forget that your lease transaction is subject to sales tax. Ask the lessor what the starting fee includes. You may be able to negotiate some additional charges for the lessor.
Early Termination: Termination of the tenancy before the end of the tenancy period. If you want to break the lease early, it will cost you a lot of money. You may need to come up with an amount equal to what is left.
Gapped insurance: Some leases automatically include gap insurance in their capitalized costs. If the car is a total loss due to theft or a collision, your insurance may not cover the total loss. Gap insurance pays your car insurance doesn’t pay.
Lessee: The rental party.
Lessor: The entity that finances the lease. It could be the finance arm of a bank, a credit union or an automobile manufacturer.
Monetary factor: In financing, this is called the interest rate, but it looks markedly different. However, as with financing, the higher the monetary factor, the larger the monthly payment.
How much to pay: This is how much you will pay for the car at the end of the lease. It should be roughly the remaining amount minus any margin.
Duration: The term of car leasing.
Can I rent a car for a year?
It is possible to rent a car for a year. But why would you do that? By the end of the first year, cars had depreciated by as much as 30%. Because your monthly payments are based on depreciation, that year will be very expensive. You might be better off renting a permanent car. It’s worth a look. Another idea you can try is clubs. These services are provided by limousine car club rental companies and sometimes by manufacturers. The club allowed members to drive the new model for short periods of time. They usually include insurance and do not require a long-term contract.