How to spot a good car lease

Leasing has been lauded as your cheapest ticket to keep up with the
industry’s hottest vehicles and trends. The jury, however, is still out
on leasing: with the industry long on hype and short on detail, it is
difficult to distinguish between a genuinely good deal and a downright
up-selling exercise.

So how do you spot a good deal?

First, you need to find out if there are any down payments on the lease. A
down payment refers to the lump sum amount that you pay upfront, either in
cash, non-cash credit or trading allowance, to reduce your monthly payment.
You should think twice before putting money down on a lease: not only are
you getting a rough deal, as you’re essentially forfeiting the general rule
of leasing:  not putting any cash upfront, but the money is not recoupable
at the end of your lease. There is another big disadvantage: in the event
of your car getting damaged or stolen, you insurance and the gap cost will
not cover the loss.

Mileage Limit

Most leasing companies allow you a limit of 45,000 free miles over the
length of a 3-year lease. This may seem like a good deal at first sight,
but when you consider it only comes to 15,000 miles over a 12 month period
it’s not difficult to foresee why it might be difficult to stay within this
limit. Even people working from home have little trouble putting 15,000
miles on their cars.
If you exceed the mileage limit, the penalty for each excess mile can be as
high as 20 cents. This can add up quickly over the length of your lease: an
additional 4,000 miles a year over the length of a 3-years lease contract,
will end up costing you an extra $2,400 in excess mileage charges!
Be realistic about your mileage needs, especially if you have to regularly
commute over long-distances, before you sign the contract. Consider padding
the miles that you expect to use since it is less expensive to contract for
the extra before you sign than it is to pay the extra charges at end of
your lease.

Sales Tax

Sales tax is usually capitalized and added to the monthly payments.
However, some dealers choose not to include it in their calculations to
drive the advertised lease payments even lower. What they do instead is
state in the small print that the monthly payment excludes “sales tax”.
Make sure you carefully read the fine print for any extra, hidden costs not
included in the advertised monthly payment. Unscrupulous fees that
typically slip through the cracks include sales tax, registration and title
fees.

Leasing Glossary

In order to get a good leasing deal, you need to understand leasing jargon.
Read through this leasing glossary to get an overview of the basics:

Acquisition fee: A fee charged by a leasing company to begin a lease. Not
all leasing companies charge an acquisition fee but if charge it starts at
about $300 and is seldom negotiable.

Capitalised cost: The total selling price of the leased vehicle This also
accounts for taxes, title, license fees, acquisition fee and any optional
insurance and warranty items you elect to fold into the lease and pay
overtime rather  than upfront.

Depreciation fee:
Forms part of the monthly lease payment charge and accounts for the loss
in the value of the car at the end of the lease. The vehicle’s list price
minus the expected residual value at lease end is divided by the number of
months in the lease to give the depreciation fee. Suppose you decide to
lease a vehicle with a retail price of $23,500. The leasing company
estimates that after a three year lease, the vehicle will be worth 35% of
its original retail value, or $8,225. The difference, $15,275, divided by
the number of months in the lease, 36 months, gives us the depreciation fee
($424)

GAP insurance Pays off the lease balanced if the vehicle is wrecked, stolen
or totalled.

Inception fees any fees that are due at the beginning of a lease. These
typically include a security deposit, acquisition fee, first monthly
payment, taxes and title fees.

Mileage allowance The maximum number of miles a leased vehicle can be
driven a year without incurring an excess mileage penalty. A typical
mileage allowance is 12,000 to 15,000 miles a year, although this is
negotiable with your leasing company.

Mileage charges a penalty that you incur if you exceed your mileage
allowance on a leased vehicle. Typical mileage charges are 10 to 20 cents
per excess mile.

Money-factor A fractional number, such as 0.00043, used in calculating your
monthly lease payments. You can get a rough estimate of the annual
percentage rate on your lease by multiplying the money factor by 2,400. If
a dealer quotes a money factor such as 3.4 than you can get the equivalent
APR, 8.16, if you multiply by 2.4.

Residual value Residual value is the amount of money the leasing company
says your leased vehicle will be worth when your lease ends. Higher
residual values lead to lower monthly payments but higher lease-end
purchase cost if you decide to keep the vehicle.

Security deposits an up-front amount that your leasing company required at
the beginning of a lease to safeguard against non-payment. This is
generally refundable at the end of your lease.

Termination or Disposition fee The amount you have to pay the leasing
company at the end of your lease if you decide not to purchase the vehicle.

Wear-and-tear charges Extra charges you have to pay at the end of your
lease for any wear and use the leasing company considers above normal