An auto lease offers you a brand new vehicle with low monthly premiums. So, you are thinking of financing your next vehicle. But how much does it cost to lease a car? You are no longer in college, and you think first impressions are important. You’ve been checking out the best SUV lease deals because you need something that makes you look like you mean business. However, you cannot tell the leasing cost even after visiting the best place to lease a car. Using an online car lease payment calculator doesn’t seem to help either. And you are now wondering why leasing a car is smart.
Well, the cost of auto lease varies depending on the model and make you choose. Regardless, monthly rates are usually lower when leasing a new vehicle than if you applied for a loan to purchase the same vehicle. Try browsing lease deals near me. You’ll notice that dealers calculate monthly lease premiums by adding up the car expected depreciation, rental levy, fees and taxes, and dividing that sum by the months in your lease agreement. The method would apply both in long-term and short term car lease deals, like if you wanted to lease a car for a month.
What Decides The Cost Of A Car Lease?
Those hunting for new cars often face a host of purchasing and leasing choices, making pricing quite puzzling. You perhaps realize that there’s no definite answer to the question, ‘how much does it cost to lease a car?’ It will depend on multiple variables, such as:
- The type of vehicle
- Vehicle options
- The length of your lease
- Your credit record
- Market demand
Still, you should consider other factors when planning to lease, including factory specials like zero down lease deals. But such elements have little impact on the overall cost of an auto lease.
The average lease payment on a new car is a little over $450 every month in a three year contract, according to the Experian. It is around one hundred dollars less than the average monthly payment for a new vehicle’s car loan at $554.
The difference in monthly premiums was even bigger for some trendy models in the report. Your type of car greatly impacts the lease cost since the residual value partly determines lease payments.
Let’s look at the precise inclusions in a car lease to help you know what you’ll pay for and make sense of the dollars and cents in leasing. First, it’s worth mentioning that leasing or hiring on a contract is simply one of the various auto finance options, like securing a personal loan.
But unlike other installment plans, you’ll just hand the vehicle back at the end of a lease agreement. You don’t have to worry about negative equity when trading in the car or to put together a huge payment to purchase the car.
There’s no intention to gain an asset at the end of a contract when you sign up for a lease deal.
What Do You Pay For In A Car Lease?
We’ll try to answer how much does it cost to lease a car by asking a different question. So, what do you pay for when renting a car? Simple. You’ll pay the estimated cost of depreciation over your agreement term or the vehicle residual value. The estimate includes your contract’s duration and the miles you’ll drive throughout the lease period or annual mileage.
It’s easy to understand the rates of your monthly premiums when you obtain a loan to buy a car. You will add the funds you are borrowing plus interest and divide it by the total months in your loan term.
The purchase price doesn’t determine the payments in a car lease. Instead, the rates depend on the residual value, which is the vehicle expected worth when ending your contract. Calculating monthly lease payments is a two stage task as follows:
1. Adding everything you’re paying for in the contract, including:
- Sales taxes
- Rent charge
- Expected depreciation over your lease term, less any trade-in or down payment
2. Dividing the sum above the total months in your lease
For instance, if the residual value plus charge, fees, and taxes sum to $12,960 in a 36 month lease term, your monthly rates would be $360.
Fees In A Car Lease
You will be paying various fees when you lease a vehicle, which can increase the cost of leasing it. Some costs will be due at lease signing, while others will be due at lease end when returning the vehicle.
Some lessors might ask you to put down the first, and at times last monthly payments plus a security deposit, which they’ll use should you default your lease.
It is also common for dealerships to levy an acquisition fee for offsetting lease processing administrative costs, including verifying your auto insurance cover and pulling your credit records.
Besides, you are likely to pay registration, documentation, title fees, and taxes, depending on where you live. You may also be forced to pay taxes when signing the lease or roll them into your monthly premiums, depending on your state. If you opt for the latter, you will pay extra rent charges on your taxes, which will hike your monthly payment.
End Of Lease Costs
There are a couple of other fees you might pay when returning the car at lease end.
- Disposition: Most leasing companies apply a disposition fee that helps to cover the costs of preparing the car sale after returning it at lease end.
- Extra Mileage: Nearly all leases come with mileage limits, usually between 12 thousand to 15 thousand miles a year. The leasing company is likely to charge you in the range of ten to twenty-five cents per mile if you drive more miles than your lease agreement allows.
- Early Termination Fee: You will usually pay a fee if you terminate the lease early.
- Excessive Damage: Every lease contract defines what it considers normal wear and tear. The lessor is likely to charge a fee if you return the vehicle in a condition that doesn’t fit those standards. For example, you will pay for cracked windows, broken components, and damages to the upholstery.
Apart from the leasing costs, you might also have to pay for regular maintenance and repairs the same way you would do if you had bought the vehicle. Furthermore, most leases typically require you to have collision, liability, and comprehensive auto insurance. Many lease contracts include gap insurance in the deal, although others have it as an optional purchase feature.
Are Car Lease Rates More Affordable Than Buying?
Hiking prices for new vehicles lead many shoppers to consider leasing a car because it offers unique advantages:
- Low money down or no down payments in some instances
- Lower monthly premiums
- You only pay sales tax on the car value at lease-end and not the entire suggested retail price by the manufacturer.
Here is leasing vs. buying comparison in a 36 month agreement to see if vehicle lease rates are cheaper than owning.
Buying A New Car
Purchasing a new car with 12,000 miles annually on a thirty six month loan for $20,000 at 6% APR, here are your costs for the first year:
- Monthly payment: $608 or $7,296 in one year
- Maintenance and repairs: $200
- Down payment or security deposit: $3,000
- Annual insurance: $1,140
- DMV charges: $400
- Total buying cost for year one: $11,736
Leasing a New Vehicle
Leasing can allow you to secure the use of an automobile without a substantial financial impact. It comes with paying lower monthly premiums and less down payment than if purchasing the same vehicle.
Here are your costs for the first year:
- Monthly payment: $350 or $4,200 in one year
- Maintenance and repairs: $200
- Down payment or security deposit: $1,000
- Annual insurance: $1,380
- DMV charges: $400
- Total buying cost for year one: $7,000
Buying vs. Leasing Comparison
You will spend $7000 out of pocket to lease a car, a lot less than you’ll use to purchase the same new vehicle at $11,736. However, insurance rates are usually higher for leasing than buying a car. Besides, when evaluating the lease costs vs. purchasing, tax elements also weigh in. Most customers can deduct the charges on a lease as actual business costs, helping to write off the whole expense, which includes all levies on maintenance and repairs.
The majority of businesses leasing vehicles can get a new model after a few years as a smart and value packed feature in auto leasing. Whether for business or personal use, purchasing a car will require disposing of it down the line, necessitating certain costs.
Moreover, a car lease comes with some warranty perks that don’t affect your budget. A lot of lease deals throw in maintenance contracts that ensure you end up with total lower costs. The downside with a car lease vs. owning is that after paying it off, the owner keeps the vehicle, without the hassles of monthly charges that a leased vehicle will still have.
Car Lease Shopping Guide
It is common to assume that you cannot negotiate prices on a car lease. Leasing can be a great option for most consumers. When determining the most ideal auto lease deal, keep in mind the total lease cost and if it is best for your situation.
The lease cost is the total amount of money you will spend on that deal. You can negotiate on this amount, just as you would the vehicle buying price. First, do your homework to see what cars have lease agreements fitting your budget. Avoid having one option that will turn the negotiations on the sales person terms. Let the dealer know in advance that you are comparing deals for different cars. It will make the person more open to working with you since you have other options.
All leases come with a mileage cap at lease end. The 36k miles and a three year term is a perfect example. You can always negotiate for a mileage increment as part of your lease agreement. In this way, you can save hundreds or thousands of dollars in surcharges at lease-end.
Various lending institutions offer leases, such as community banks, online lenders, and credit unions. We recommend shopping around like you would do if you intend to finance a car. Call your bank to see if they can help you lease the vehicle. Besides, most employers provide partnerships and resources with lenders, which might be suitable for you. You can be sure to land the best available lease deal if you shop around.
Step By Step Guide To Leasing A Car
Leasing is less complicated than purchasing a vehicle. However, you must follow these steps to find the best lease deal on your dream car:
- Choose A Vehicle Type: You should first decide the kind of car you need, whether it is a sedan, SUV, truck, convertible, or any other type.
- Select Your Models: List all the car types that fit your financial parameters. Include models with low insurance rates, high dependability, robust safety features, and excellent gas mileage to minimize no lease expenses.
- Go For Test Drive: After narrowing your list to a handful of models, ensure you take each vehicle for a test drive. Be keen on visibility, steering, shock absorption, comfort, braking, and internal noise.
- Inquire About Safety: It’s best to find out from the salesperson if the car has an Anti-lock Brake System (ABS) as you take it for a test drive. You should also ask about other valuable safety features like head protection airbags and electronic stability control.
- Compare Different Leases: Calculate the available lease deals after visiting the dealer to see how much you can pay through monthly installments.
- Discuss The Price First: When you are ready to visit the dealership to close a deal, don’t reveal your intention to lease until you negotiate a purchase price. Many lessees are unaware that the final price will determine their monthly premiums.
- Beware Of Pushy Dealers: The salesperson may try coercing you into closing the deal by emphasizing the reasonably low monthly payment. However, that figure will still add to the total lease price.
- Lease Payment: The more you put down when signing the lease, the lower your monthly payments will be. Like any bill, there are penalties for failing to make timely payments. Besides, returning your leased vehicle early, before the end of your loan term will usually attract a penalty, save for trading in with another bought or leased car.
Frequently Asked Questions (FAQ)
Your base monthly rate minus interest, taxes, and fees will be $292 on a $30,000 car with a sixty-five percent residual value. Picking a car with a higher residual percentage would result in over $200 in monthly savings for a vehicle with a similar price tag.
Purchasing a vehicle with a loan, leasing, or buying with cash is normally a money losing deal. The reason is that cars have a rapid value depreciation over time. Leases are not a waste of money since you are only paying for the natural depreciation during your lease term.
Your lease payments will depend on multiple variables, such as DMV fees, taxes, interest rates, the make and model of your car, your credit history, and many more. However, the average lease price in the first quarter of 2019 was about $450 a month on a three-year term.
Overall, it is best to lease a vehicle shortly after the release of the model. The residual value usually is highest at this time, translating to more savings on the car depreciation cost. Most vehicle manufacturers introduce new models between the months of July and October. Leasing around this time could maximize your savings.
Leasing a car provides lower monthly payments compared to buying a similar vehicle. You’ll also have little or no down payments depending on the type of lease. Unlike purchasing, you will only pay sales tax at the end of your agreement and not the whole MSRP.
The Bottom Line
The answer to how much does it cost to lease a car will vary with the vehicle’s make and model, taxes and fees, residual value or expected depreciation, plus interest charges. Overall, an auto lease offers lower monthly premiums than those on an auto loan. So if you are debating whether to buy or lease, look around and explore available options to settle on a route that makes financial sense in your case.
Approach every lease deal with confidence and with your research. In this way, you will find the best lease option available. Dealerships are agents or representatives for various leasing companies. Therefore, researching and comparison shopping ensures you visit the dealership on an equal bargaining ground.