Car Leasing Guides - Moneyshake Car Leasing Comparison (2024)

FAQs

What is the 1 rule in car leasing? ›

When researching the different aspects of a lease deal, you'll come across the “one percent rule.” This method is intended to be used for a 36 month lease and 12,000 mileage allowance and divides the monthly payment you will be making for the lease (without taxes) by the MSRP. A good lease deal will be 1% or lower.

But according to personal finance expert and New York Times bestselling author Suze Orman, you should never lease one. “Leasing a car is the biggest waste of money out there. You only get to drive at 12,000 miles. You have to have a lease gap insurance.

The main disadvantage of leasing a car is that you never own it. You don't build equity in the vehicle as you make lease payments. Lease terms can be anywhere from two to five years. A lease can be ended early, though early termination typically involves a cancellation fee.

You can negotiate the money factor on a lease to a point. Dealerships and leasing companies typically have a limit to how low they're willing to, whether that's asking price, money factor, or mileage limits. Even lessees with perfect credit can't necessarily qualify for a money factor lower than this set limit.

The lessee has the option to buy the asset at the end of the lease term at a bargain purchase price that is below the fair market value. The lessee gains ownership at the end of the lease period. The present value of lease payments must be greater than 90% of the asset's fair market value.

Generally, a money factor of 0.0025 and below (the equivalent of 6% APR) is considered a good rate. So how do you get a good interest rate when you lease a vehicle? The same way you do when borrowing for any other reason, whether it's buying a home or applying for a personal loan: by having good credit.

Conventional wisdom suggests that putting money down on a car loan can help reduce the interest you pay over the life of the loan. However, you don't own anything at the end of a lease, so your down payment doesn't go toward building equity in the car.

Leasing helps protect you against unanticipated depreciation. If the market value of your car unexpectedly drops, your decision to lease will prove to be a wise financial move. If the leased car holds its value well, you can typically buy it at a good price at the end of the lease and keep it or decide to resell it.

Car leases are fleeces he says. He's quite vocal in his opinion about car leasing, and that's expressed in a reply he gave to a question on how to get out of a car lease. Dave vehemently opposed this transportation style simply because of its capacity to increase transportation costs.

On the negative side, you don't have any equity in the vehicle. You're free to drive as many miles as you want. But keep in mind that higher mileage lowers the vehicle's trade-in or resale value. Most leases limit the number of miles you may drive, often 10,000 to 12,000 per year.

What is the truth about leasing a car? ›

The most important factor to consider is that leasing is like renting, and your payments won't go towards owning the car, unless there's an option to purchase it. Instead, you'll need to return the car once the lease ends. To help you choose the best option for you, here are some of the key factors in buying vs.

Why are car leases so expensive now? The cost of cars has significantly increased, as has the cost of leases. Plus, many current lease contracts aren't as favorable toward drivers as they once were – a result of increased demand for new cars.

You can find the best lease deals by calculating the “real” monthly cost per $10,000-worth of vehicle. If we've lost you already, basically what you do is factor in costs like the acquisition fee and down payment to total up all the “hidden costs” of a lease, then divide that by the MSRP, and multiply that by $10,000.

The only way to alter your monthly lease payment is to return the vehicle and pay the early termination fees or do a lease buyout. Refinancing your lease could result in lower payments, but this isn't always the case.

Dealers may not be upfront about disclosing the money factor, nor are they required to be. “Most dealers won't tell you until you ask—and most customers aren't aware that they should—but it's crucial information since it plays a major role in calculating your monthly payments,” Francies said.

The Rule of 78 formula

The lender allocates a fraction of the interest for each month in reverse order. For example, you would pay 12/78 of the interest in the first month of the loan, 11/78 of the interest in the second month and so on. The result is that you pay more interest than you should.

It's a common rule of thumb to adhere to the 1% rule. This rule dictates finding a monthly lease payment equivalent to 1% of the car's purchase price. For example, a $60,000 car would be a steal if you leased it for $600 monthly. You cannot negotiate acquisition fees, residual value, registration costs, or sales tax.

Typically your warranty will last the entire period of your ownership, so you do not need to worry about expensive repairs. You will also find decent monthly payments by choosing 24-36 months. Choosing the 36 month lease will give you a better interest rate though.

If you aren't required to make a down payment on a lease, you generally shouldn't. The No. 1 thing to keep in mind is that putting money down on a lease doesn't lower the overall cost to save you money in the long run as it does with a car loan.