Wheels24

Six tips on leasing a car

2013-06-20 13:18

Even with low interest rates, many drivers are leasing a new car or truck instead of purchasing a new vehicle. New vehicle leasing climbed in the US during the first three months of 2013 to its highest level in seven years, according to Experian Automotive.

Leased vehicle made up nearly 28% of all new vehicles financed, the largest proportion since 2006.

LEASING HAS IT PERKS

Melinda Zabritski, senior director of automotive credit at Experian, said: “Lenders have seen overall stability come back to the market since the recession and leasing has gradually returned as a larger part of many lender strategies."

Leasing has its perks, especially if you want to drive a new car every couple of years while keeping monthly payments low but understanding whether leasing is right for you and how complex lease agreements can be is essential to avoid ending up paying more than you bargained for.

Here are six tips to get a good deal when leasing a new vehicle:

1 Understand the difference between leasing and buying

Generally, buying a car and holding on to it for many years is the least expensive way to own a vehicle. Despite the fact that vehicles depreciate over time the they do retain some value that you can apply towards your next purchase.

If you lease a vehicle, you”ll only drive it for a fixed period.

Your monthly lease payments go toward paying for the depreciation in the vehicle, not ownership, and there are restrictions on how many kilometres you can rack up during the lease period.

When the term expires, you can re-negotiate to purchase the vehicle or lease another vehicle. Leasing offers many benefits, particularly when it comes to payments as monthly installments will typically be less than what you’d pay if you took out a loan purchase a car.

The short-term commitment allows you to drive a new car every few years.

Jeff Bartlett, deputy editor at ConsumerReports.org, said: “If you’re really focusing on your short-term financial situation, lease has much appeal, but if you have the luxury of looking long-term, buying will be a better investment.”

2. Haggle for a better deal

Buyers have become accustomed to haggling over the price of a car, down payment or interest rate on a loan when purchasing a car. Few drivers realise you can employ the same strategy for a lease.

Bartlett said: "Many people fall into the allure of the low monthly price that being offered. You’re just handing more money over to the dealer.”

With any purchase, experts recommend a potential customer familiarise themselves with the sticker price and any factory incentives being offered on the vehicle. Experts advise haggling with the sales staff for a lower price before filling in the lease terms.

3 Be realistic about your mileage

Lease contracts include limits on kilometres and if exceeded you’ll be charged a per-km rate. A common annual limit is 20 000km, though some drivers may be tempted to opt for less to save money. Be realistic about your driving needs or you could face thousands of rands in fees at the end of the lease term.

One option is to prepay for additional kilometres at a lower rate. Make sure to add this to your lease terms or you will be credited for the uncovered distance.

4 Avoid leases over three years

More than half of all new auto leases are for two to three years, according to Experian.

Philip Reed, senior consumer advice editor for car research site Edmunds.com, said dealers are increasingly offering longer leases. Any lease period over three years should be avoided. That’s because longer lease terms can expose you to having to pay for repairs such as tyre and brake replacements.

5 Should you buy your leased vehicle?

At the end of the lease term you’ll have the right to purchase the car you’ve been leasing for a pre-determined amount known as the residual value. Bartlett says that, with a few exceptions, you will generally end up paying more than if you had bought the car to begin with.

Reed advises that drivers obtain an estimate for the value of their vehicle near end of their lease period, before deciding whether to buy it.

6 Remember, there’s always a way out of the deal

There are websites that connect drivers who want out of their lease agreement early with car shoppers looking to take over an auto lease contract.

If you are in business in South Africa, vehicle lease payments are tax-deductible.

Email us and we’ll publish your thoughts on Wheels24.

AP

Comments
  • Wollie Verstege - 2013-06-20 16:48

    another advantage: Switching to a new car every few years means that your family is always protected by the latest available safety technology. Currently I will never buy a car, unless its a collectable. Will only resort to buying when I retire in 25 years.

      Fredster69 - 2013-06-21 08:03

      You do have a point, but spending thousands of rands a month on a new car, and you never own it is not wise. Today's cars can last at least 10 years without major problems

      WollieVerstege - 2013-06-21 09:24

      Thing is, I love my family to much to put them in a 10 year old car. Go look at the safety features of a 2003 model car and compare that to cars of today. There is no point in having some money, but you die in a car accident. Just FYI, the differnce in my monthly payment, lease vs purchase, I pay into my bond, which is a much better long term investment.

      Erwee Coetzee - 2013-08-31 13:16

      @Fredster most South Africans never ever receive ownership of their vehicle, because they sell the car as soon as or even before they finished servicing the debt to buy a later model car, that is safer to drive and is more often than not more fuel economic with a lower carbon footprint. Yes it is better to buy a car Cash and then drive it for 2 years and then trade it in for your next cash paid new car, if you are in the financial position, but lets face it most people aren't

      Nicky Van Rensburg - 2013-12-11 16:11

      Wollie, I'm looking to lease a car, can you recommend a reputable company please? Many thanks.

  • Erwee Coetzee - 2013-08-31 13:08

    There is definately a lot of merrit for leasing a vehicle in our current economic climate as it is always easier to get out of a long term car rental agreement, than a loan from the bank. PACE Car rental in Johannesburg offers good leasing and rent to own options even for people that are blacklisted.

  • Cordon Mampofu - 2015-02-10 01:00

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