Introduction to leasing
Leasing is a financial transaction that allows you, the lessee, to drive away in a new or used car without actually buying the car. However, unlike financing the purchase of a car, it's very difficult to tell exactly how much it costs you to lease a car. That's because the lessor (the dealership, then manufacturer, or finance company) is not required to disclose the interest rate - and interest is the

What is leasing?
Leasing, like buying a car, is a way to drive a new (or used) car or truck. When you lease, however, you never own the car and you usually don't build any equity. In this respect, leasing is much more like renting a car-you primarily pay for the amount of the car you use up. This is called depreciation, the decrease in the value of the leased vehicle while you have it. For instance, if you lease a new $20,000 car for two years and the vehicle depreciates $6,000, you'll pay for the $6,000 of depreciation plus interest and any other fees and payments required by the lessor. Unfortunately, calculating depreciation depends on the initial value of the car (purchase price) and the value at the end of the lease (residual value). These values can be adjusted to the advantage of the lessor or the lessee.

If your lease is ending, what next?
If you're currently leasing and the end of the lease is near, then you'll soon be faced with deciding whether to turn in the car or whether to exercise the purchase option (if there is one in your contract). If you like the car and want to continue driving it, you can look up the purchase option price in your original lease contract. If the purchase price is less than the current market value of the car then it may make sense to buy it. If the purchase price is more than the current market value of the car, then it may not make economic sense to buy the car because you'll be paying more than the car is worth. The easiest way to determine what the actual value of your leased (or any other ) vehicle is to check our Used Car Valuations.

If you do find that the current value of the car is less than the purchase price option, you may want to try and negotiate a deal with the lessor. Remember that with a traditional lease, you always have the option of walking away at the end.

Who can lease?
Anyone can lease a car, however, the best lease deals in terms of cost are usually reserved for those people with good credit. Even if you don't qualify for a manufacturers lease offer, it's likely you can still lease. Just be aware of the factors that impact the cost of the lease.

Good lease bad lease.
No one can tell you if a lease is good or bad. A lease is good or bad depending on whether it's for a car you want to drive, if it's affordable for you, and if the lease is for the number of months that suits your needs. There may be other considerations depending on your financial and family needs. Always be sure to read all the details of any lease offer and never sign a contract until you've read it completely and understand all of it.

Characteristics of a Lease
Low monthly payments and little or no 'down' payment (capital cost reduction) are two of the primary reasons so many people choose to lease new and used cars and trucks. Remember, when you lease, your payments are primarily based on the value of the car that you're going to use. When you finance, you must make payments on the total value of the car. For the same reason, smaller 'down' payments are required in a lease because the amount of the car you're paying for is so much smaller than the total value.

As a result of lower monthly payments and low 'down' payments, many people find that they can actually lease a more expensive car than they could finance. For instance, if you could afford a monthly payment of $399 you could finance the purchase of an $18,000 car or lease a car with a purchase price of about $32,000 for the same monthly payment. Leasing allows you to drive a luxury car on a midsize budget.

Lower lease payments also provide a way for you to control your cash flow and to use your money for other investments or purchases.

Leases often require a minimum level of insurance as well, sometimes as high as $100,000 for liability. Be sure to check with your insurance company and with the lessor before you lease. You could easily find yourself with an affordable monthly payment for the lease and monthly insurance costs that aren't affordable.

There are different kinds of leases
There are really two kinds of leases that most people see advertised in their local newspaper, on television, or on the world wide web. Those are manufacturer leases offered by auto manufacturers and/or their captive finance companies (like GMAC) and 'local' leases offered by individual dealers, dealership groups or independent lessors.

Manufacturers and their finance companies often subsidize their leases (subvented leases). These leases are offered with special incentives that make the lease more attractive and less expensive. These special incentives often take the form of a lower base interest rate, higher residual values, and manufacturer discounts. In most cases, a subsidized lease will have a lower net interest rate than other leases. (Not all manufacturer leases are subsidized.) Subsidized leases are usually available for a limited time and in general, it's not possible to negotiate a better deal. If you don't lease the exact car described in the manufacturer's lease offer, with the exact terms as presented, then your lease may cost you more even if your monthly payments remain the same.

Lease advertisements often identify who is offering the lease. If it is a manufacturer or the manufacturer's finance company, they will be identified in the small print at the bottom of the ad. If the advertisement refers to stock number(s), then you can be fairly sure that it is not a manufacturer lease offer. IntelliChoice only reviews and evaluates identifiable manufacturer leases.

Manufacturer leases may vary by region too. Lease offers may be available only in specific regions and there may be more than one manufacturer lease offer in effect for any vehicle. The availability of leases is noted on all IntelliChoice Autolease Evaluations.

'Local' leases are offered by individual dealers, dealership groups, or independent lessors. They are usually advertised in local newspapers and do not have the participation of the manufacturers; instead, they are backed and written with the assistance of local banks or financial institutions. 'Local' leases can vary significantly from dealer to dealer and region to region.

Not all leases are from dealers and manufacturers Independent lessors are private companies that specialize in leasing vehicles for business or personal use. Independent lessors can arrange for the lease of virtually any make and model of car or truck and can arrange for special terms in the lease such as higher mileage limits. For example, if you are leasing a car for business use and need a mileage allowance of 30,000 mile per year, then an independent lessor might be the right place to go.

Buyvs. Lease The decision whether to buy or lease is not one that can be based simply on facts, calculations, or tables of data. It is as much a lifestyle decision as a financial decision and only your current situation, needs, and desires will ultimately guide you to a final decision.

The issues we've gathered below will help you evaluate your lifestyle considerations and, used with IntelliChoice's financial analysis, can help you make an informed decision.

LEASING MAY BE RIGHT FOR YOU IF . . .

You prefer not to put a lot of cash up front in the form of a 'down' payment.

Leases usually require much less cash up-front than financing will. A lower upfront payment will free your cash for other investment or personal use.

You would like to have lower monthly payments.

When you lease a car, you're really only paying for the portion of the car you use over the duration of the lease, so, your monthly payments are less than if you were paying for the whole car.

You would like to drive a more expensive car for a lower initial cash outlay.

Monthly payments for leases are usually lower than monthly payments on loans. Therefore, you can often lease a more expensive car for the same or lower monthly payment required for the purchase of a lower priced car.

You like to drive a new car every two to four years.

If you like the idea of driving a new car every few years, then it may make sense to lease a car. By leasing, you can just turn in the car at the end of the lease and pick out a new car to drive. You'll avoid all the hassle of selling or trading in your old car.

Your accountant has suggested that there may be tax advantages to leasing.

Sometimes there are tax advantages to leasing rather than buying a car, especially if the vehicle is used for business rather than pleasure or personal needs. Consult a tax specialist if you think there's an advantage to leasing.

LEASING MAY NOT BE RIGHT FOR YOU IF . . .

You expect to drive more than 12,000 to 15,000 miles annually.

Almost all leases have strict limits on the average number of miles you can drive the car or truck each year during the lease. Driving more than the allowed number of miles can result in significant additional charges at the end of a lease.

You are not inclined to regularly maintain and care for your car.

Every lease allows for a 'normal amount of wear and tear on the vehicle. However, if you aren't inclined to take care of the vehicle, inside, outside, tires, engine, maintenance, etc., then you should consider buying or be willing to face additional charges when you return the leased vehicle.

It's important to you to own your car.

When you lease a vehicle, you don't usually establish equity in the vehicle. If ownership is important to you, consider buying or financing the vehicle.

You think you might have to end the lease early.

If there's a chance that you'll have to terminate the lease early, then you may want to consider buying or financing the car. Early termination penalties can be substantial and you'll have no vehicle to sell to cover the fees.

What you should know before you negotiate the lease of a car

Negotiating a lease in a dealership is often a difficult task and can take several hours. It's important that you keep your wits, and, to be prepared to get up and walk out if the negotiation isn't going the way you want. If you find yourself beginning to think "let's just get this done" then take a break, this is when you're likely to agree to more than you should. Remember, your first priority is getting the best deal, not getting out of the showroom.

When you enter into a lease negotiation, it pays to be as well informed as possible. If you're not well informed, then the dealer will have more control of the negotiation. Here's a list of things you should know and have written down when you go to the dealership:

Vehicle Purchase Price - you should know the price you would pay to buy the car as equipped. If you're not sure, consult a vehicle report for detailed invoice and list pricing of all options and features.

Trade-in Value - if you're going to trade-in a car, you should know the wholesale and resale value in advance. These values are available free of charge from IntelliChoice.

Residual Value - this is one of the most important factors in determining the cost of a lease. You can find approximations of residual value in The Complete Car Cost Guide or The Complete Small Truck Guide and other publications at your local library. You should compare your residual value with the residual value or purchase price at end of lease value provided by the dealer.

Tax - When you lease a car or truck, you don't have to pay tax on the whole vehicle but you do have to pay tax on the down payment you put up. If you're making a large down payment, you may have to pay several hundred dollars in tax up front. You will also be paying tax on each monthly payment; this is a relatively small amount each month.

Before you sign a lease contract...

Leasing is a financial transaction. Make sure you protect yourself by checking your contract before you sign it, and by asking the right questions and removing ambiguity.

Ask for the money factor or lease rate (base interest rate). Most dealerships are computerized and they use software programs to calculate the lease deals. One of the items usually shown by the software program is the Lease Rate. Although this isn't the bottom line interest rate, it is another factor that will help you determine if you're getting a good deal. If the Lease Rate is a lot more than current interest rates, it's probably not a good financial deal.

Make sure you and the dealership agree on what constitutes normal wear and tear. Without a clear understanding, you could face additional fees at the end of the lease.

NEVER sign a lease contract unless the Vehicle Purchase Price is shown on the contract.

NEVER sign a lease contract unless the residual value or the optional purchase price a the end of the lease is shown.

NEVER sign a lease contract unless your trade-in is shown and that the value of your trade-in is subtracted from the Vehicle Purchase Price.

Negotiating a lease
Negotiating a lease can be difficult and confusing. Dealer salespeople have many ways to change different parts of a lease including the fees, monthly payments, residual value and even the purchase price of the vehicle. Here are a few things you can do to make the leasing process a little easier for yourself. Many of these suggestions apply to the buying process as well.

1. Know how much you want to pay for the car. Even though you're leasing, a purchase price for the car will be part of the lease contract. That purchase price should be the same price you would pay if you were buying. You can negotiate! IntelliChoice Vehicle Reports provide you invoice and list pricing for every feature and option of any car or truck.
2. Negotiate the price of the car upwards from the dealer cost, not down from the MSRP.
3. Don't talk about leasing with a salesperson until you know what car you want and what you want to pay, unless you're specifically responding to an advertised lease you want to take advantage of.
4. If you see a lease offer you like and the dealership offers you the same car with additional options or features, know that the terms of the lease will be different than what was advertised. The monthly payment might stay the same, but other factors, like residual value and purchase price will likely change.
5. When you're negotiating the lease, be prepared to walk away if you don't like the way the negotiation is going or if you're not comfortable with the numbers you're being presented with.
6. Lease contracts are complex documents. Take the time to read all the documents you're asked to sign, be willing to ask questions.
7. If it helps you to be prepared, print out our leasing definition pages and take them with you to the dealer. If you're not sure what impact a fee or contract point might have on the cost of the lease, just look it up.