Car Insurance

When it comes to leasing a car, your best bet is to lease a new one. Though it may cost more, it is a more practical decision. The primary consideration when you buy or lease a car should not be money - it should be the use that you can derive from it. A car fresh from the factory, generally gives you the assurance that all parts are in proper working condition. There is also a warranty that supports the car for a number of years - hopefully through the leasing period that will cover all major repair costs.

Leasing a new car does not require much financial expertise. You do want to be aware enough to haggle for the lowest possible deal so that the monthly payments will be lower. Depreciation is calculated on the estimated residual price of the vehicle when the lease period terminates. The difference has to be paid by the lessee. Once the price is settled, then papers are filled out and sent for approval. The deal is affected greatly by how good your credit is. Students and first-time lessees find it difficult to get a lease.

Monthly payments depend on a term called the money factor. This is a small decimal number, which when multiplied by 2400, gives the interest to be paid each month. An ideal deal is one in which the interest on a lease comes out to be the same as the interest on a normal loan.

While leasing a new car, it is important to remember that payments made every month will be significantly higher than for used cars. Depreciation is very high in the first year of purchase and is cut in half each successive year. That means for a short-term lease on a new car, the payment would be high. Add to that sales taxes, and you are paying a major bill each month for your car.

The satisfaction of leasing a new car is you are driving a new automobile with new technology. The car will also have a higher resale value at the end of the term should you decide to sell the car or trade it in for a new lease. New cars are easier to maintain and consume less fuel.

When you lease a car you pay for the period that you use it. In other words, suppose a car costs $25,000 at the onset and it is leased for a period of 2 years. If its value at the end of 2 years were considered to be $13,250, you would have to pay $11,750. This amount would is payable in 24 equal installments with interest added.

When calculating the current value of the automobile, car-leasing companies take into account the capitalization price, also called the cap price or the lease price. This price could be lower than the manufacturer?s suggested retail price of the car, which is subject to negotiations.

The next step is the evaluation of depreciation during the period of lease. Depreciation is considered more in the first year of lease, about 30%. Then the next year it is 17%, a little higher than half of the first year. In the third year it is 8% and so on — always-about half of the previous year. Depreciation is judged arbitrarily, as there can be no prediction about the future. The difference in the cap cost and the cost after considering depreciation is called the residual price.

Then comes the application of the interest rates. Every car has a number on it called the money factor. This money factor is a small decimal number that is multiplied by 2400 to give the interest rate. This interest rate is applied to the residual price, and it is divided in equal monthly installments.

Thus, when you lease a car, you can feasibly drive a new car every three years, or whatever period the lease is for. Financially speaking, a lease is cheaper than taking out a loan to purchase a car. If you pay some amount upfront, it makes the difference less and reduces the monthly installments. While leasing a car, it is better to make the lease period coincide with the warranty on the car. This way all the major repairs are covered by the warranty period. Leasing also proves less worry because once the lease period is over; you can simply trade it in and lease a new one. There is no hassle of having to get rid of the old car.

Like any financial benefit, leasing also has its problems. Even a zero percent lease is not zero percent. There is always a cost to be paid to the lease company. There are the taxes such as sales tax, deductibles, etc. There is even a tax on the monthly payment. Some leasing companies also set a limit on the mileage per year. If your car crosses that limit, then you end up paying extra to compensate for the wear and tear due to the extra damage. Lease companies may not refund the claim money if they think that the car has not been maintained properly. It is imperative to save all the bills of maintenances and repairs done to the car.

One should carefully weigh out the pros and cons before agreeing to leasing a car. Strictly speaking, there is no convenient way to wrangle out of a car lease. Trying to terminate a car lease before its period is over attracts hefty penalties and also spoils your credit record for your next purchase. It is essential to get all the facts about car leases before approaching a leasing company.

The following are frequently asked questions you should know the answers to before signing your new car leasing agreement.

Q. Can I trade my existing car in, what will it be worth and how will it affect the cost of my new lease car? A. This can help lower the monthly payments on your new lease car. You need to know when the discount is applied and how much this will be as you may have to pay the full amount and claim it back later – find out first! Make sure you know exactly how much trade-in value you are getting.

Q. What do I pay when signing the lease? A. Find out all the costs and what they are before you sign on the dotted line for your new lease vehicle. There can be several charges that you haven’t thought of and you should know what each one is and when it needs to be paid.

Q. What free miles do I get, what happens if I go over this? A. A typical lease car agreement will be for annual mileage between 10,000 and 15,000 miles. After this you will be charged for every mile at a set rate per mile. Sometimes you can agree a lower rate than first offered – this is important if you think you may go over the set mileage as costs can mount up on your lease car!

Q. If I can’t make a lease payment on my new car what happens? A. Although this is unlikely you still need to find out what happens if you find yourself unable to make the payments on your lease car. Even if it is only a temporary change in circumstances involving one late payment make sure you know the consequences. Insurances such as Early Termination Insurance and Redundancy Insurance are available to cover all eventualities, please ask one of our sales team for further information on that.

Q. Can I hand my new lease car back early? A. Typically if you have to hand the car back before the end of the lease agreement you will have to pay an early termination charge. Make sure you ask how much this could be. Again, insurances such as Early Termination Insurance and Redundancy Insurance are available to cover all eventualities, please ask one of our sales team for further information on that.

Q. How long is the lease? A. Lease terms can vary anywhere between 1 year (12 months), two years year (24 months), three years (36 months) and even five years year (60 months). When you choose your lease term you should take into consideration the servicing schedules of the car as terms that go slightly over a 12 month period could end up costing you more in servicing charges e.g. a 39 month term instead of a 36 month term. Check the servicing schedule first!

Q. Can the lease be extended? A. Not usually a problem but it is worth asking first as the monthly costs may go up. You do not want to be paying one fee for two years then when you decide to keep your lease car for another year to find that the monthly payment goes up.

Q. What happens at the end of the lease? A. If you have ever wondered where all the cars go at the end of the lease the answer is the caution rooms. Main deals and independent car dealers by the ex-lease stock at trade prices and them sell it on to the public with their profit added. So if you are looking for a used car bargain, don’t visit your local dealer, go to the source and get down to your local car auction!

Q. Can I lease a used car and save money? A. You can lease a used car but there are several points you should be aware of. The car usually has to be less than 24mths old, “VAT Qualifying” and covered less than 20,000 miles.

Your payment may be lower compared to leasing a brand new car because much of the depreciation will have already occurred. British manufactured cars are usually good value as used cars as they suffer heavy depreciation in the first 12mths. A car that is one or two years old is usually a good bet – don’t buy something too old. Also check the residual value at the end of the term to make sure it is not too high.

Car leasing is not only an appealing financial proposition to most auto-consumers, but also a lifestyle and preference choice.

Here a four key benefits of leasing a car.

1. Keeping up with the latest trends. Leasing is occasionally more of a personal and lifestyle choice than a financial one. Lots of people are not comfortable with the idea of owning a car over a long period of time. They’d rather keep up with the latest technology and safety innovation and drive the latest models every 2 to 3 years. If you are prepared to sacrifice ownership for the latest set of wheels, than leasing is your best alternative.

2. Leasing also offers buying flexibility: it allows you to defer the buying decision while using the car. You do not have to negotiate with your mechanic over repair costs, deal with large maintenance bills or worry about a depreciating asset. You are actually getting a test drive for the length of your lease. At the end of your lease, you can buy the car or simply turn in the keys and walk away.

3. Leasing offers numerous short-term benefits. It reduces your preliminary cash expense because you do not have to pay the large down payment required for car ownership. You only pay for the depreciation on the car - only the part you will use during your lease, not the entire vehicle. This results in lower monthly payments and frees even more cash.

4. Almost everything about leasing is negotiable. If you know all the fees involved, you can lower your monthly payments, negotiate the purchase price of the car at the end of the lease and contract additional miles on top of your mileage limit. You can also do some shopping around and compare deals from different auto-insurers to get the cheapest GAP insurance for your lease.