We are faced with numerous life scenarios which require us to make decisions on a daily basis. What clothes to wear, what food to eat, what activities to partake that day, etc. Some financial decisions we might have to make are not so much clear cut. After all, if we had the chance to choose how our finances would be, we would all be billionaires living on some luxury island.
Needless to say, everyone wants to own a car at some point in their life but not all can afford to pay for the full amount the dealership wants. This factor has made certain car dealerships and subprime lenders formulate new ways which would enable such people to drive away their new cars.
One of such methods is leasing a car. Did you know that some auto dealerships have offers such as $99 car lease no money down? Leasing a car has its own perks and a few drawbacks which we shall get to find out in this post. Take a look at all you need to know about no down payment car lease.
What exactly is car leasing?
Often a misunderstood term, leasing a car simply means getting a new car without having to buy it. Confused? Let us put it this way, when a buyer wants to lease a vehicle, they are cutting a special deal with the dealers. Instead of paying right then for the vehicle, the buyer pays for the depreciation incurred during the time of the lease which usually lasts for about 2 or 3 years. The buyer also takes care of any other costs and fees incurred during the lease period. The buyer will have to make some money down when signing up for a lease arrangement. The deposit paid is not as much as the down payment which would have been made if purchasing the vehicle outright. Some dealerships have offers which do not obligate you to make a down payment. Two main terms associated with car leasing are;
- Capitalized cost – this is the going price of the car you wish to lease. You may (and should) negotiate the cost price just as you would have done if you were buying the vehicle.
- Residual value – this is the value of the car at the end of the lease and is almost (never) up for bargaining.
In practical, let us say you want to buy a Honda car with a cap cost of $30,000. The residual value three years from the time of buying will be $20,000. In this case, the buyer is on the hook for $10,000 plus interest and other fees incurred.
Leasing or buying a vehicle: Which is the best option?
Many people become so confused about what option is the best for them. However, it is not just a decision which should be based on one thing; there are a lot of things at stake when you decide to make a decision. There are a few questions one should ask themselves before deciding on either leasing or buying the car.
- The money factor – How much money are you willing to spend on buying or leasing a car and how much will you have saved in the short or long run? Do you have all the money prior to purchasing the vehicle?
- Would you want to own the very same car for a long period of time or you would like to mix it up a little bit after some time? (In 2 or 3 years)
- How often will you be driving your car? Will the mileage shoot up? Will there much wear and tear which would eventually bring down the residual value of the leased car?
With these questions in mind, it will be paramount to go over the pros and cons of both leasing a car and also buying.
Benefits of leasing a car
- Lower monthly payments. The costs incurred when signing up for a car lease are definitely lower than buying one outright. Little or absolutely no down payment is required. In most cases, it is not necessary for you to pay an upfront sales tax. At the end of the lease period, however, you may incur certain costs such as going past the allowable mileage, having unrepaired damages on the car, or terminating a car lease before the period expires.
- Fewer repair costs. When being covered by your manufacturer’s warranty for the period of your lease, you will have very few repair expenses to incur. When your dealership or manufacturer does not have any insurance covers or warranties, you can opt for instant auto insurance no down payment.
- Owning a new car more often. When you lease a car, you are able to own new cars with new technology and features more often than somebody else who chose to fully buy the car. Furthermore, you get a chance to spice up your life with different vehicles.
- No loan approval problems. When buying a car and wish to get financed, you may hit a stumbling block especially when you have a bad credit history. With car lease dealerships, your credit report does not matter. They sign over the car to you and have the authority to take it back should you default on your lease payment schedule or violate any lease terms.
- No hustles for selling a car. Once you have fully bought a car and wish to sell it in the future, you may have some worries on how to get a fair price for your car. For someone with a leased car, you do not have to worry about that, you will just return the car to the dealership and you may get a new one if you like.
Drawbacks of leasing a car
- Penalties when you exceed the maximum allowed mileage
- Penalties for excessive wear and tear
- Monthly payments can be quite a task
- You may be subjected to generally higher insurance premiums
- Penalties when you terminate the lease before the term expires
Benefits of buying a car
- You pay less in the long run. While monthly lease payment terms are generally less costly, it is not the case in the long run. You can build upon equity for the long run when you decide to sell or trade in your car.
- No mileage restrictions. When you want the freedom to drive your car as far as you want as many times as you want, then buying is the best option for you. There are penalties imposed on those who go past the allowed maximum mileage when leasing the car.
- You can sell the car whenever you want. Buying a car means that it solely belongs to you and that you are not bound by any laws not to sell it. You can sell or trade in the car with another one even with a different dealership. When you lease a car, you are bound by the terms of the agreement to only deal directly with the leasing dealership.
- No restrictions on appearance. When you want to accessorize the vehicle or even have it custom made, buying is the option for you. Most car leasing companies prefer if you bring back the car to them at the end of the lease period in the same condition you took it with.
The drawback of buying a car
- Unpredictable resale values
- Depreciates over time
- Large down payment
- Higher monthly installments if being financed
How to lease a car
If after going through the pros and cons of both leasing and buying, and you have put your eyes on leasing a car, there are some tips you have to follow;
1. Do your homework
Conduct extensive research before you set out looking for the best car for you to lease. Know what requirements you may be asked to provide, calculate the approximate amount of money you will spend, etc. Know the capitalized cost of the car you want plus the insurance costs and all other costs. With that information, you are ready to go to the dealership.
2. Look for deeply discounted offers
There are so many dealerships and manufacturers who offer lease deals. Conduct your research and find out which of those dealerships have better offers for you. Be cautious though, as there may be hidden charges behind those lucrative deals.
3. Know all the lease requirements
Once you are at the dealership inquire about all the lease requirements they have. Will you be forced to pay money upfront or not? What is the total mileage requirement? The lease details vary from one dealership or manufacturer to another.
4. Negotiate the price down.
Just like you would do when buying a new car, negotiate the price of the vehicle downward in order to get a fair price. Ensure you get some good negotiation skills before heading out to the dealership.
5. Watch out for dealer markups
Dealer markups, also known as ‘the money factor’ can also be negotiated down. This is especially so much possible if you have essentially solid credit. The money factor, which is also referred to as the buy rate, determines the amount of money you will pay as part of your monthly lease rate.
6. Consider a longer lease
If you feel like you do not have much cash to pay the required monthly installments, you can opt for a longer lease. A longer lease, in this case, will reduce the amount you will be required to be paying monthly. There is a flipside to this though, owning the car for longer could mean more wear and tear and risks of going past the allowed mileage. If you are sure of taking good care of the car within this period, then go for it.
7. Carefully go through the contract before committing
This is the most vital part of any leasing arrangement. There might be some dealerships which may try to con you into signing up for something you are not even aware of. Ensure to go through every detail of the agreement noting down any conflictual phrases or clauses. Ensure that the figures you had verbally agreed on are reflected on the document. Should you have any questions or concerns do not delay in pointing it out and asking.
Lease a car with no down payment
It is very possible to lease a car with no down payment. Even most car dealerships which have offers for leasing cars with a down payment can have special exceptions with no deposit made. Such leases have different requirements which a buyer should meet. Most dealerships advise their buyers to at least make a down payment prior to leasing out the car as it eventually has lots of financial implications in the long run. One may be forced to pay higher interest rates without making a deposit for the car. However, some car dealerships have rather fair interest rates charged brought upon the buyer.
Certain car manufacturers have the same offers too where you can lease a car with or without making a down payment. Companies such as Honda often run such promotions. Even though you pay a higher monthly installment, the leasing parameters are the same and nothing really changes. The value of the vehicle does not change whether a down payment has been made or not.
How to Get Out of a Car Lease
While leasing a car gets you one with up to date features and technology, one of the main drawbacks of doing so is that you cannot sell the car at any given time. There are instances where one is forced into selling the car but since they are not able to, they seek to terminate the lease. Returning the car to the dealership and asking them not to charge you for the car again sounds easy, right? It is not that simple though.
There are a number of repercussions to ending a car lease sooner than anticipated including heavy penalties. This is because the car is no longer new and they can no longer lease it out again. Different companies have different lease termination policies so it all depends on how your contract was put.
Ending a lease because of financial hardships
Many leases that are terminated are as a result of tough financial times. You may have been discharged from your job, health concerns, a divorce, and many other financial problems. As long as you are still bound by the lease agreement which is a legal document, you are still not going to be given any special treatment. Should you wish to terminate the lease you will still be faced with hefty prices to pay.
Some companies might actually reconsider and let you suspend payment for a couple of months. You will still, eventually, have to pay it all back with interest. In some places, members of the military are the only exception in that case. They may be posted to a new station for long and hence might want to terminate the agreement. Not unless you are protected by state laws such as the military, you will be bounded to the later by the lease agreement.
Defaulting on your car lease
Defaulting on a car lease is the worst possible thing that could happen. This would prompt the leasing company to initiate a number of actions which would eventually not only hurt you financially but also your credit score.
The company will have to repossess your vehicle and might even slap you with a repossession fee. They will also charge you an early termination penalty plus the payments of the remaining months. Failure to comply will get you sued and you can only imagine what that will do to your finances. Be assured your credit score will also perform dismally.
Defaulting on your lease will not only harm your credit score but will also prevent you from getting car leases from other companies anytime in the future. Defaulting on a lease should be your last resort after all other options have been exhausted.
Lease buyout and sale
This is one of the best methods of getting out of a lease without your credit score and finances getting harmed. In fact, you may walk out of it with some extra cash. Most lease contracts will show the rate at which the value of the car decreases. If not particularly sure, you can contact your lease dealers to take you through the buyout amount. Ensure that an out the door price is the one you have been given. Inquire about the termination fees and about any credits from your security deposit.
You can ask if there is any legal obligation you have not to sell the car, and again, refer to the lease agreement. Get a new willing buyer of the car, quote your price to him and agree to sell him at the price of or close to the payoff the leasing company wants. If successful, everyone goes home happy.
Having done enough research before setting off to the dealerships, will guarantee you the cheapest car to lease with no money down. All you have to do is to follow our tips and as always, beware of scammers.