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What you Need to Know Before Leasing a Car

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There is a lot to understand when it comes to leasing a vehicle. Before you even consider signing an agreement, you must learn as much as possible about the process. From fees to terminology and credit score ratings, here is what you need to know before going to a dealer.

Understanding the Sales People Gibberish

Sales people have a habit of speaking their own language and the terms they use are not always easily understood. Before you speak so someone about leasing a car, make sure you understand what these words and phrases mean.

If you hear the term “capitalized cost”, it simply means the cost of the vehicle. Whether that be the manufacturers price or the price you negotiate with a sales person.

Residual Value is a term often heard when speaking to sales people and it means it the estimated value of the car at the end of the lease. To get the best value, you will want to make sure the residual value is higher to capitalize on the cost.

The last term you need to be familiar with is capital cost reduction. This is a down payment and should only be used when the person leasing the vehicle does not intend on purchasing the vehicle at the end of the leasing agreement. The only time a capital cost reduction would be appropriate in these situations is if it were to be added as an incentive.

Consider Your Credit Score

Taking out a lease on a vehicle will affect your credit score the same way as taking out an auto loan will. Applying for a lease initiates a credit inquiry that has a small impact on your credit score. Leasing improves the use of credit, which also has an impact on your credit score. When you first start your lease it will increase credit use, which does affect your credit score. However, once a regular payment history is established, your score will begin to increase. Consider how your credit score will be affected before you find a lease deal.

When Not to Get a Lease

There are many mistakes people make when leasing a car. The biggest mistake is leasing a car when they shouldn’t. If you are trying to drive as cheaply as possible, this is not the right option for you. If you can’t afford to make car payments every month then you will not be able to pay for the fees that come with leasing a vehicle. People drive a lot or drive in areas that have the potential to add extra wear and tear to the vehicle are not good candidates for a lease. Any extra depreciation to the vehicle during your lease could mean you will be paying for extra fees in the end.

Know the Leasing Fees

Everyone who leases a car will run into extra fees throughout the term of their lease. The most common fee is an acquisition fee or financing fee. You can expect this upfront cost to be at least into the low hundreds. Anyone interested in leasing a vehicle will also need to expect a delivery cost fee that has to be paid upfront in most cases. Finally, there will more than likely be a disposition fee.

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