Wednesday, February 10, 2010

Leasing Part Two: Roadblocks And Negotiation Previously we discussed if leasing was the right move for you. Now that you've decided leasing is something to consider next time you buy a new vehicle, lets examine some of the pitfalls of leasing:

Pitfalls of Leasing

Terminating a lease early could cost you dearly. If you purchased a vehicle utilizing the traditional financing method, you would also lose on the depreciation in case you decided to trade the vehicle for another one within the first twelve months or during the mid-point of your payment cycle.

And, if you think you may want to break the lease early, occasionally an automaker may waive up to six months of your final payments, without a penalty, provided you're not over the mileage and you purchase another vehicle by the same car maker. According to the Consumer Bankers Association, 22 percent of the leases in 2004 did not reach their full term. Beyond the low monthly payments, there are pitfalls to leasing. Before terminating a lease early, consider advertising your vehicle on

You never own the vehicle. The overall cost of the vehicle could possibly be lower had you utilized the traditional financing method.

If it's not required, think twice about the down payment. It helps to lower the note, although the overall cost of the lease will remain the same. In case you total-out the vehicle or it's stolen, you'll lose your down payment. Your personal insurance and the gap insurance coverage typically included in the lease will pay off the car. But your down payment will never be seen again - because it was used at the beginning of your lease to reduce the monthly payment.

Although you don't own the vehicle, you're responsible for repairing it in case you're involved in a minor fender bender or a major accident.

If you like to drive a lot, you're limited to the number of miles you can drive. If you choose to drive over the agreed upon mileage, you will more than likely incur a mileage penalty.

If you like to customize your vehicle with specialty paint jobs or non authorized factory spinning wheels, don't expect to do it with a lease vehicle. Your vehicle can only be equipped with factory approved options.

Negotiating a Lease

Now that you've learned of some of the major roadblocks to leasing like with anything its time to put your negotiation shoes on. Yes, although most folks aren't aware of it, leases are negotiable. Lease prices are based on the capitalized cost, which is the selling price of the car and the residual, the amount the vehicle will be worth at the end of the lease. The price you agree to is one of the factors used to determine your lease payment.

In most instances, most automakers are advertising very competitive lease payments with little room for negotiation. You'll note most advertised leases are for 10,000 miles to 12,000 miles. You can purchase enough mileage in advance that will allow you to drive up to 20,000 miles annually. Some lease companies may charge between 10 cents to 15 cents per mile to buy your miles up front as opposed to paying 20 cents to 35 cents on the back end for driving over the mileage.

It may be to your advantage to purchase the miles on the front end of the deal, as opposed to paying a mileage penalty for driving over the agreed-upon miles. And just in case you don't use up all of the miles before the lease ends, don't expect a refund. If your intentions are to purchase the vehicle after the lease expires, there is no need of buying additional mileage.

Also the money factor also known as an interest rate is a big factor in your payment. To determine if you've been assigned the appropriate interest rate based on your credit, multiply the money factor by the number 24, this will determine your interest rate. Just like with conventional financing, interest rates may be negotiable.

Calculate the overall cost of the lease versus the overall cost of financing to see which makes the most financial sense. To calculate a lease payment, click here.

To learn more about what to do after the warranty expires and to determine if you should refinance or walk away from your lease, click here.

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