Good or Bad Car Lease: How to Tell the Difference

You’ve decided to lease a car—great news. There are lots of perks to opting for this type of car ownership. You’ve weighed the pros and cons and have had your heart set on a specific car. You are thrilled, ready to sign the paperwork and move on with your life and into your new ride.

But don’t lose sight of the fact that car leases often include specific terms and conditions that may be difficult to meet. So before your signature dances along the dotted line, make sure that you understand all aspects of the lease agreement. The following aspects are just a few factors to consider when evaluating the quality of your lease agreement.     

Compare Lease Payment to 60-month Loan Payment

For drivers with good credit who take impeccable care of vehicles and who prefer new cars, a lease is a reasonable option. It is important, however, to compare the cost of a monthly lease payment to that of a 60-month loan payment as the latter may be more cost effective.

Evaluate the Residual Value

Residual value refers to a prediction of what a car will be worth at the end of the leasing term and is identified as the single most important factor in a lease agreement. In general, the higher residual value of a vehicle, the lower the monthly payment will be. For this reason, leasing more expensive vehicles (based on MSRP) can have lower monthly payments because the residual value offsets the higher price of the vehicle. A residual value identified in the lease agreement that is low compared to market values could be an indication of a sub-par lease.

Inquire about the Interest Rate (Money Factor)

As previously mentioned, an individual with “Good” or “Excellent” credit is the best candidate for a car lease. The interest rate will also impact your monthly payment. Lease payment terms are often different from loan payment terms. Therefore, it is important to be aware that interest rates for car leases can be negotiated. Assess your interest rate by visiting or contacting multiple dealerships.

If there is a large discrepancy based on the financing information you provided, you know that you are looking at an unreasonable lease. Most importantly, remember that car dealers are just trying to make a living, too, and that under certain circumstances, interest rates can often be negotiated.  

We all know the importance of reading the small print whether it comes to legal, medical, personal, or financial information. But we also all know that many of us simply can’t be bothered by the fine print. Or we falsely think that one agreement is like another and that our signature doesn’t bind us to anything significant after all. But the truth is that not all binding agreements are universal. Lease agreements, terms, and conditions vary greatly among car manufacturers.

Therefore, knowing and understanding how to identify vital aspects of a car lease will make the experience more desirable in the long run.