Written by Garrett Borden

What is a lease?

In short, you are paying a dealership to rent a brand new vehicle.

lets break down the components of a lease. A dealership will offer leasing deals which are generally 24-48 months long, require a down payment, and  your payments will often be lower than if you financed the car through a bank or credit union. The reason that you are not going to pay as much for a car per month on a lease is because you are paying for the depredation of the car, not the total value. Think of it like this, you lease a $20,000 car, and it is projected to be worth $10,000 in three years. Your payments are going toward that $10,000 lost in depreciation, not the total value of the car. This model protects the dealership from loosing money in that depreciation when you turn the car in. If you so choose, you can opt to buy the car out from the dealership at the end of your lease. This would entail you financing the remaining retail value of the car.

What are the upsides?

Not only does leasing a car often offer a lower monthly payment, because you are not taking a loan out on this depreciating asset, you do not develop negative equity. Second, dealerships often offer “no deposit” and or “no money down” deals. “No deposit” waves the $2,500-$5,000 deposit often required to enter a lease, where as “no money down” waves that deposit and other associated fees at the dealership prior to starting your lease. Thirdly, because of the short nature of leases, you vehicle will often stay within the limits of its factory warranty, meaning that any defects in your car will often be covered by the dealership.

What are the downsides?

Well, you saw that many leases require a deposit, ranging anywhere from $2,500 to $5,000. This often inhibits younger people from entering a lease due to a lack of saved monies. A second negative comes when its is time to turn in your vehicle, because you never really owned the car in the first place, any damages or mileage over your limit will result in you paying penalties to the dealership.  Make sure when negotiating your lease terms, that you calculate your average annual driving distance. Many leasing programs offer options from 10,000 to 30,000 mi/yr, as your limit increases, so does your monthly Payment.

See below the terms and conditions I copied from the Toyota website. I have highlighted the important information many people over look.

OFFER DETAILS

"Lease a new 2020 RAV4 2WD 5Dr. Wagon LE L4 8AT Model 4430: $269 / for 36 months / with $2,999 DUE AT SIGNING. NOT ALL CUSTOMERS WILL QUALIFY. Amount due at signing includes DOWN PAYMENT of $2,730 and FIRST MONTHLY PAYMENT of $269. Security deposit required with exception of prior Toyota Financial Services (TFS) financing history and/or TFS tier rating in which a security deposit may be waived. Tax, title and license are extra. Based on Model 4430, TOTAL MSRP $27,290, including delivery, processing and handling, and NET CAPITALIZED COST of $24,482. Excludes official fees, taxes and dealer charges. LEASE END PURCHASE OPTION is $17,739 plus tax, title and license. Customer is responsible for disposition, excess wear and tear fees and $0.15 per mile over 10000 miles each year. Dealer participation may affect final negotiated price and applicable taxes. Monthly payment may vary depending on final price of vehicle and your qualifications. Must take delivery from dealer stock. Dealer sets final price. Offer valid 02-04-2020 through 03-02-2020 for vehicles purchased from Toyota dealerships in AR, LA, MS, OK, TX regardless of buyer's residency. See dealer for vehicle and lease program details."

Pro Tips:

• Look out for $0 down leasing specials frequently!
• Read the fine print, that $250 payment may look good, until you discover that you need $4,000 down and can only drive 8,500 mi/yr.
• Don’t be afraid to haggle a little

Edited by Marcus