10 Steps to Leasing a New Car

Step 9: Reviewing and signing the paperwork - continuation

One last thing, check to make sure the contract you are buying includes "gap insurance," which is recommended when leasing. If your leased car is stolen or totaled in an accident, there might be a gap between what your insurance company will pay you for the loss and the amount you now must pay to the leasing company. If you take out gap insurance (it is included in some lease contracts), this will cover you for this loss.

Step 10: Successfully managing your leased vehicle - As you drive your leased vehicle, you need to remember that the car will have to be returned in good condition. Have all the scheduled maintenance performed at an authorized dealer and keep your eye on the odometer to avoid exceeding the mileage limit. When the time approaches to end the lease, you will have several alternatives. You can turn it back in and lease a new vehicle. You can buy the car for the residual amount stated in your contract and continue driving it. In some cases, you can even extend your lease term on a month-to-month basis while you decide what your best course of action will be. Whatever you decide to do, take the time to consider each avenue carefully. Check current market values of the cars that interest you (using Edmunds.com True Market Value prices) and shop for lease deals from manufacturers. You've reached the end of the final step. Now, it's time to go out and put your knowledge into action. Just remember, the time you take to research your leasing decision will pay dividends over the years. You'll not only be driving a car that suits your needs, but you'll be saving money in the process. That's a big payoff for a little bit of work.

Checklist -

Decide how much you can afford to spend on your lease payment. Decide on the right length of a lease for you (Edmunds.com recommends leasing for three years).

Check to see what special leasing deals are available on the car you want to lease.

Print out the Edmunds.com TMV price on the car you want to lease (adjusted for options, color and region).

Use the leasing calculator to determine the monthly lease payment.

If you are trading in your old car, check its value on Edmunds.com True Market Value and print out this information.

Call the Internet manager to negotiate the best lease for the car you want to buy.

Once you've reached a good price, ask the salesperson to fax you a worksheet showing all the prices, taxes and fees.

Bring your worksheet with you to the dealership so you can compare these numbers to the figures on the contract you will be signing. Make sure the contract includes gap insurance.

Inspect the car for dents, dings and scratches before taking final delivery.

As you drive your leased car, make sure you perform all the scheduled maintenance and do not exceed the mileage limit.

LEASE SPECIALS

Incentives & Rebates

Manufacturer to Customer Programs | Manufacturer to Dealer Programs | Today's Incentives & Rebates | Glossary Incentives and Rebates are programs offered by the manufacturers to stimulate sales. The three most common programs are provided directly to consumers in the forms of Cash Rebates, Low Interest Financing and Special Leases. Some manufacturers also provide first-time buyer, military, and other programs to target specific customer segments. Manufacturers also provide Marketing Support directly to dealers, which may or may not be passed on to consumers. These marketing support programs take many forms, but the most common type of program is a Dealer Cash Incentive. Incentive programs are subject to change at any time by the manufacturer.

Manufacturer to Customer Programs - Manufacturers provide Cash Rebates directly to the customer at the point of sale to reduce the net price of the vehicle. Consumers normally elect to credit a cash rebate as a down payment against the new vehicle's purchase price. However, there are many instances in which customers are allowed to choose either a Cash Rebate or a Low Interest Financing offer. In these cases, you may find it useful to utilize the Low APR-vs-Cash Back Calculator to help you make this decision based on your individual circumstances. In still other cases, customers may benefit from both the Cash Rebate and the Low Interest Financing offers in combination. This varies by manufacturer. It is important to note that the advertised Annual Percentage Rate (APR) quoted in the offer is normally based on the top customer credit tier and not all consumers will be eligible for this best rate. Manufacturers often offer Special Lease programs through their captive financing companies. Most of the lease programs listed on Edmunds.com are of this variety and are known as a subvened (subsidized) leases. Subsidized leases such as these are generally based on a Residual Value much higher than the actual worth of the car at the end of the lease and/or an interest rate, expressed as a Money Factor that is subsidized to result in below market rates. Each Special Lease program specifies the monthly payment, the Term, any Down Payment requirement, the Security Deposit, and the annual Mileage Allowance. The estimated monthly payment is based on a typical amount financed and typical Down Payment. The sales price of the vehicle, as well as the Residual Value, Lease Term, Security Deposit, Acquisition Fee and down payment may be negotiated, but they will in turn affect the monthly payment amount. In other words, you might be able to negotiate to a $0 down payment, but your monthly payment would increase commensurately to compensate.

Manufacturer to Dealer Programs - While Cash Rebates, Low Interest Financing, and Special Leases are made available directly to the buyer, manufacturer to dealer Marketing Support is made available exclusively to the franchised dealer for use in marketing their vehicles. Most commonly represented as a Dealer Cash Incentive from the manufacturer, dealers may or may not choose to pass some part of this Marketing Support money on to their customers. Frequently, the salesperson will not even be aware of dealer marketing support programs, but, not to worry…our Edmunds.com True Market Value price has already taken these programs into account.

Glossary

Acquisition Fee - For a vehicle lease, a fee charged by the leasing company that covers a variety of administrative costs, such as the costs of obtaining a credit report, verifying insurance coverage, checking the accuracy and completeness of the lease documentation, and entering the lease in their data processing and accounting systems. This charge may also be called a bank fee, an administrative fee or an assignment fee.

Cash Rebates - Cash Rebates are provided by the manufacturer directly to the customer at the point of sale to adjust downward the net price of the vehicle. Consumers usually elect to credit the cash rebates as a down payment against the new vehicle's purchase price.

Dealer Cash Incentives - Dealer Cash Incentives are typically paid to the dealers by the manufacturers to stimulate sales momentum or reduce inventory pressure for certain vehicles. There are many variations, but the most common dealer cash incentive structure provides a cash credit to the dealer upon the sale of a vehicle in the program. In other cases, dealers earn cash bonuses when they achieve sales volume targets. However, there are also programs where dealers earn the incentive upon purchasing the vehicle from the manufacturer. These programs vary widely, but in all cases the Edmunds.com True Market Value Prices have taken these cash incentives into account.

Disposition Fee - An amount charged by the leasing institution at the end of a lease to cover the cost of retrieving and selling your vehicle if you choose not to buy it. The amount, which varies by leasing institution, is fully disclosed in the lease contract. You will be billed for this charge after you turn in your vehicle.

Down Payment - For a vehicle purchase, the initial payment that reduces the amount financed. For a vehicle lease, an initial payment that reduces the capitalized cost (i.e., the amount financed) or that is applied to other amounts payable at lease signing.

Finance Rate (APR) - For a vehicle purchase, the annualized cost of credit, expressed as a percentage.

Incentives and Rebates - Incentives and Rebates is an auto industry term that describes the programs that manufacturers and dealers provide to stimulate sales. They take many forms, but they all lower your car-buying costs.

Lease Term (months) - For a vehicle lease, the number of months of the term of your lease.

Special Leases - Special Leases are offered by the manufacturer to stimulate sales by lowering the customer's monthly payment through subsidizing the vehicle's Residual Value or Money Factor.

Low-Interest Financing - Low-Interest Financing is a loan, offered by the manufacturer's captive finance company, at a below-market interest rate. Normally eligibility is limited based on the customer's credit worthiness. Use the FREE Edmunds' Personal Credit Analyzer to find out how your personal credit stacks up.

Marketing Support - Marketing Support is a global term that describes manufacturer to dealer programs specifically designed to assist dealers in marketing their vehicles. The most common program is in the form of cash credit to the dealers, who may or may not choose to pass some part of this money on to their customers.

Mileage Allowance - Mileage Allowance is the number of miles that a lease payment quote is based on. (The primary factor influencing a lease payment is the expected Residual Value at the end of the term.) If the customer expects to drive more average annual miles than the standard lease allows, it may be beneficial to buy the additional miles up front (which in effect adjusts the residual value downward and in turn raises the monthly payment) as opposed to paying the mileage penalties at the end of the lease. Generally the leasing company will require customers to pay a per mile penalty at the end of the lease term if the customer's actual driven miles exceeds this mileage allowance.

Money Factor - Money Factor is a reflection of the interest rate used in lease payment calculations (also called the "lease factor.") Money Factor is a method of expressing an interest rate that is more suited to computing your monthly payments. It is calculated by dividing the percentage interest rate by 2400 (regardless of the length of the loan). For example, 7.2% interest expressed as a money factor is 0.003.

Residual Value - Residual Value, also known as the Guaranteed Future Value, is the leasing company's estimate of what the vehicle will be worth at the end of the lease term. The higher the residual that is used, the lower your monthly payments will be.

Security Deposit - For a vehicle lease, the amount you may be required to pay (usually at the commencement of the lease) that may be used by the leasing company in the event of a default. Any unused amount will be refunded to you at the end of the lease term.

Special Leases - Special Leases are offered by the manufacturer to stimulate sales by lowering the customer's monthly payment. The manufacturer, through its captive finance company, will often subsidize both the vehicle's Residual Value and the finance Money Factor when structuring the lease, all geared toward lowering the customer's monthly payment.

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THE LANGUAGE OF LEASING

Leasing has its own language, so we have provided a list of key terms at the back to assist you. These key terms will be found on any lease contract you look at.

WHAT IS LEASING?

Leasing is a way of obtaining a vehicle for a set period of time

IS LEASING FOR ME?

The advantages of leasing are: 1- a lower monthly payment than you would pay on a loan for the same vehicle 2- you pay tax only on the monthly payment rather than up front on the full price of the vehicle 3- the opportunity to drive a new vehicle more often 4- the comfort of knowing you vehicle is under warranty for the full duration in the case of the short term (2-3 years) lease 5- you have options at lease end (return the vehicle, buy the vehicle if you lease has a purchase option, or let the leasing company sell it.) 6- you avoid tying up your money in a vehicle.

The disadvantages of leasing are: 1- the carrying cost is high if you keep your vehicle on lease for a long period of time 2- the lease can be costly if the lease is not based on the number of kilometers you realistically expect to drive 3- you don't own the vehicle and do not build up "equity" with a lease as you do when you purchase a vehicle

Leasing is not for everyone. The least expensive way to obtain a vehicle is always to pay cash. If you cannot pay cash then the shortest borrowing term available to you will result in the lowest interest cost or "carrying cost". The faster you repay what you have borrowed, the lower your carrying costs. Carrying costs for a lease are higher than with a loan of the same term because you are only paying off the depreciation, and not repaying the entire value of the vehicle.

THINGS YOU NEED TO KNOW

1. Whether you lease or buy . . . you need to insure your vehicle --- In addition to insuring the vehicle, you must make sure that you have the amount of coverage required by your lease. This may be more than if you buy your vehicle. 2. Whether you lease or buy . . . you are responsible for licensing and registering your vehicle --- You are responsible for paying the license and vehicle registration fees during the term of the lease, just as if you bought the vehicle - 3. Whether you lease or buy . . . you are responsible for maintaining your vehicle --- Unless you have a lease that is a "full maintenance" lease, you are responsible for maintaining the vehicle according to the maintenance schedule set out in you Owner's Manual. - 4. If you lease . . . you are responsible for repairing the vehicle --- You will need to repair the vehicle as necessary. If you do not properly repair the vehicle, you may be charged Excess Wear and Tear - 5. Whether you lease or buy . . . you are protected --- There is a Canadian Motor Vehicle Arbitration Plan (CAMVAP) CAMVAP is a free arbitration program available to you from participating manufacturers and leasing companies. If you qualify for arbitration under CAMVAP, the program will help you deal with any disputes between you and the manufacturer that might arise concerning manufacturing defects in you vehicle. Usually, the leasing company will work with the manufacturer to resolve your concerns. (This program is not currently available in Quebec.)

IF YOU LEASE ----- You should know

1. There are different kinds of leases

Closed-End Leases: In a Closed-End Lease, you make a set number of lease payments during the term of your lease and return the vehicle to the leasing company at the end of the lease term. You are not required to make any additional payments unless there is physical damage to the vehicle, such as Excess Wear and Tear, or the number of kilometres you have driven is higher than the kilometre limit set out in the lease. At the end of the lease, your options are: return the vehicle, buy the vehicle (if there is a purchase option), lease a new vehicle. Most manufacturer's leases are the close-end type.

Open-End Leases: In an Open-End Lease, you make a set number of lease payments during the term of your lease and return the vehicle to the leasing company at the end of the lease term. Then an adjustment will be made. You will be required to make an additional payment covering the difference between the actual value of the vehicle at the end of the lease and the Residual Value stated on your lease contract. However, if the value of the vehicle is more than the residual value stated on your lease, then you are entitled to the difference. For example, if the residual value in your lease is $8,000,00, and the leasing company can only sell the vehicle for $7,500.00, you will have to pay $500.00. If the vehicle is sold for $8,500.00, the leasing company will pay you $500.00.

2. There are payments required at the start of the lease

Refundable Security Deposit: Most leases require you to pay a security deposit. The Security deposit will be refunded at the end of your lease, unless it is used to pay for any remaining amounts that you owe.

First Lease Payment: You may be required to pay the first lease payment.

Leased Vehicle Amount Reduction (Down Payment) You can lower your monthly payment by trading in a vehicle or paying an amount in cash. This is similar to a down payment on a loan. On some leases, a significant down payment may be required.

License and Registration Fees: You may be required to pay vehicle license and registration fees at the time the vehicle is delivered to you.

3. There may be an Acquisition Fee If your lease contains an Acquisition Fee it increases the carrying costs of the lease and must be included in the Total Lease Charges.

4. Your lease may contain GAP Protection (VERY IMPORTANT) If the vehicle is in an accident and is damaged beyond repair, GAP protection will cover the difference (the gap), after you pay the deductible, between what you owe on the remainder of your lease and the amount of your insurance settlement. Many leases may include GAP protection but traditional vehicle loans usually do not.

5. You may not be allowed to remove the vehicle form the province or territory in which you leased it, without the prior permission of the leasing company. Most leases state that you must obtain permission from the leasing company to take the vehicle out of your province or territory if you will be out of your province or territory for an extended period of time.

You can usually "purchase" additional kilometres at the time you sign your lease at a lower cost than at the end of your lease term.

With Open-End Leases: Open-end Leases normally have no kilometre restriction, however, the number of kilometres you drive will lower the market value of the vehicle at the end of the lease, increasing your costs at lease end.

THINGS YOU MAY WANT TO CONSIDER FOR YOUR LEASE

1. Purchase Options. You may choose to buy the vehicle if your lease contains a purchase option. Some leases give you the option to purchase the vehicle at any time, while other leases give you the option to purchase the vehicle only at the end of the lease. If your lease has an option to purchase the vehicle, the purchase option price must be clearly stated.

2. Right to Early Termination. You will not be allowed to end your lease early unless it is stated on you lease. If your lease contains this right, it should also contain the formula for calculating the early termination amount.

KEY TERMS

Acquisition Fee: This fee covers the cost of preparing and servicing your lease. If charged, this fee increases the carrying costs and must be included in the Total Lease Charges.

Amount to be Amortized: This is the difference between the Net Leased Vehicle Amount and the Residual Value and represents the Depreciation that you pay over the term of your lease. For example: The Amount to be Amortized is calculated as follows: Net Leased Vehicle Amount $20,000 minus Residual Value -$12,000 equals Amount to be Amortized $8,000

Annual Percentage Rate: The Total Lease Charges expressed as an annual rate

Default: Default occurs when you fail to comply with any terms of the lease. Your lease will set out specific circumstances which will result in your being in default.

Depreciation: This is the loss in the vehicle's value that occurs over time. The longer you keep the vehicle, and the more you drive it, the more the vehicle will depreciate. In your lease, the depreciation is referred to as the Amount to be Amortized.

Excess Kilometre Charge: The cost you face if you drive your vehicle more kilometres than the maximum stated on your lease. This charge is set out as a number of cents for each kilometre over the stated maximum, plus applicable taxes.

Excess Wear and Tear: Every vehicle will experience normal wear and tear from every day use. Excess wear and tear is over and above expected normal wear and tear. Your lease should describe what excess wear and tear means. Examples of excess wear and tear include: Bald or Mis-Matched Tires Body Damage Missing Parts or Interior Rips & Tears

Lease Term: This is the number of months that your lease will be in effect.

Leased Vehicle Amount: This is the amount you and the leasing company agree on for the vehicle and any other items such as accessories, extra equipment, freight, applicable taxes (such as air conditioning tax) and pre-delivery inspection. Monthly Provincial and Federal/Harmonized taxes are not included and will be listed separately.

Residual Value: The Residual Value is, unless otherwise stated, the estimated wholesale Value of you vehicle at the end of your lease.

Total Lease Charges: The Total Lease Charges are the total carrying costs you pay over the term of the lease. This amount is similar to the cost of borrowing charges on a loan. These charges represent a portion of your monthly lease payment, the other portion is depreciation.

DISCLOSURE CHECKLIST

Use the checklist below to compare the information offered by different leasing companies to ensure that your contract show all of the applicable information you need to make your leasing decision.

LEASING COMPANY NAME - LEASING COMPANY NAME - LEASING COMPANY NAME (3 companies) - DISCLOSED INFORMATION - Acquisition Fee - Allowable Kms and Excess Km Charges - Annual Percentage Rate - Gap Protection - Leased Vehicle Amount - Leased Vehicle Amount Reduction - Option to Purchase at Lease End - Residual Value of the Vehicle - Right for Early Purchase - Right for Early Termination (Include. charges) - Security Deposit: - Term of the Lease - Total Amount Due at Lease Signing - Total Lease Charges - Total Monthly Payment - Notes: -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------