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3 things you must do before you lease a car

Need wheels? Leasing might be the right choice for you. Here's how to prepare.

By Credit.com Mar 21, 2014 12:38PM
This post comes from Gerri Detweiler at partner site Credit.com.

Credit.com on MSN MoneyI tend to drive my cars until they die, and a couple of years ago that’s exactly what happened. In need of a new car, but not sure what I wanted for the long-term, I considered leasing a vehicle. But if buying and financing a car seemed confusing, leasing seemed even more overwhelming. I ended up buying instead.


Row of cars in car lot © fotog, Tetra images, Getty ImagesTurns out, though, that while leasing isn’t for everyone, it can have some advantages. Lower monthly payments and more flexible credit score requirements may be two of them.


If you are thinking about leasing, here are three things you can do to help improve your chances of getting approved.


1. Check your credit

Your credit score will play a key role in the lease you are able to get. "There are going to be different tiers of credit that will be evaluated," says Scot Hall, Executive Vice President of WantALease.com, an online marketplace for new lease deals. "If you have better credit, you will get better rates unless it’s a dealer-subsidized lease."


Checking your credit reports at least a month before you plan to start shopping is ideal, since that will give you time to dispute and fix mistakes. While you are at it, check your free credit scores as well (you can access them using a free tool, like Credit.com's Credit Report Card). You will get an idea of where you stand and whether there are potential issues with your credit.


What kind of credit scores are required to qualify for a lease? "(If) you do have good credit it really unlocks the door to the best lease deals. You’ll be able to take advantage of some of the lease specials," says Edmunds.com Consumer Advice Editor Ron Montoya.


In addition, it may be easier to qualify for a lease than a loan on certain vehicles, at least when it comes to your credit scores. The make and model of the vehicle you choose will also affect your options. Experian Automotive found, for example, that the average credit score of someone who took out a loan for a new Volkswagen Jetta in the fourth quarter of 2014 was 716, while the average credit score for someone leasing one was 692. But for someone driving a new Jeep Grand Cherokee, the average credit score for a loan borrower was 735, while the average credit score for a lesee was 728.


 average credit score


2. Know your cash flow

One of the distinct advantages of leasing is that it may allow you to pay less per month than if you financed the same vehicle. According to Experian Automotive, the average monthly payment for a new lease was $420 in the fourth quarter of 2013, and the majority of leases (66%) were for a 24- to 36-month term.


But your lease payments may be lower than a loan payment for a similar vehicle. For example, the average lease payment for a Jetta was $287 while the average loan payment was $389. And for a Grand Cherokee, the loan payment averaged $611, compared to $470 for the lease payment.


  average payment


Keep in mind that these monthly payments don’t take down payment or trade-in into account. And if you lease, you’ll either have to turn in the vehicle or purchase it when the lease term is up. "Consumers need to fully understand any potential cost on the back end and be sure they can meet the terms of the lease -- such as mileage limits and wear and tear," says Melinda Zabritski, senior director of automotive credit for Experian Automotive.


3. Don’t just shop for a car, shop for a lease

Unlike auto loans (which are available from a variety of sources including banks, credit unions, dealers and even online), leases today are largely controlled by the manufacturer. "Nearly all leases are done on a captive basis," says Hall. For example, "Ford Motor Credit Co. does most of the leases for Ford vehicles."


That means you may be able to get a better deal if you are flexible and willing to consider a vehicle from a different manufacturer.


In addition to credit, the company offering the financing will look at your debt-to-income ratio and the “lease-to-value” ratio -- in other words, how much you are financing compared to the value of the vehicle, says Hall. If you are having trouble qualifying, you may need to put additional money down or get a co-signer, he adds.


The good news is that most people who apply for a lease qualify for one. Lease approval rates during the month of January were above 70%, according to SwapALease.com. Though that’s down from 73% in December of 2013, it’s up from September 2013 when a little more than 62% of applications were approved.


And there’s still another option: If you’re not ready to commit to a two- or three-year lease, you can consider taking over the remaining term on someone else’s lease. As long as your credit is in the same "tier" or better than the person whose lease you are assuming, you shouldn’t have much trouble qualifying, says Hall. Sites like SwapALease.com and LeaseTrader.com help bring together consumers who want to get out of leases and those who want to assume one, and allow you to try out leasing without a longer-term commitment.


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6Comments
Mar 22, 2014 3:51PM
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Leasing a car is a form of psychological warfare... forewarned is forearmed!

The dealership wants you to pay more than MSRP with the add ons...they cleverly put an additional price tag on a vehicle with the "options" they have added. For example, three of the biggest rip offs are pinstriping, fabric protection and paint sealants. They charge an additional $200 to $300 for pinstriping that costs the dealer $20 a roll for (and they can do a pinstripe job on at least two cars with a roll of the striping tape), $300+ for fabric protection when the cost of a couple of cans of Scotchguard is $20, and $300+ for paint sealant, which is nothing more than a $20 bottle of car wax and must be re-applied every 6 months or so or the "warranty" is void.

Trust me.. they love someone who comes in with the doe in the headlights look.

They hate educated consumers.

Also - check insurance prices before you lease.  U don't want to lease a car that will cost $100/month to insure.  You can probably get insurance for around $25/month (check 4AutoInsuranceQuote).   Oh yeah, and don't buy a gas guzzler either!

It isn't really a lot of work.. an hour of research can be done on line, saving thousands in the showroom.

Mar 22, 2014 4:32PM
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"One of the distinct advantages of leasing is that it may allow you to pay less per month than if you financed the same vehicle."

Of course, once you've made the last payment when buying you can expect the car to last another 10 years with few problems, if you stay on top of your fluids, the way cars are built today.  I bought a 1997 Taurus new in 1997.  I'd still be driving it now if someone didn't run into it while parked on 12/31/12.  On Jan 8, 2013 I got a 2013 Honda Fit. I expect to purchase my next car no sooner than 2028.  The total cost to buy the car through 2027 will avg. $100 per month.
Mar 23, 2014 11:09AM
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Leasing almost never is the best deal for anyone, especially if normally you keep cars for 7 years or longer.  Much better to buy and finance no longer than 3-4 years.  If you can't afford a 4 year loan, you are buying to much car. 


When leasing you need to worry about all the end of lease gothas.  Excessive mileage, excessive wear and tear, diminished value from a repaired accident, termination fees.  You also have to buy insurance to protect you from the car being totaled during the lease.  NO thanks, I will always buy, not lease.

Mar 24, 2014 5:14PM
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Leasing can be a good thing, especially if you don't drive more than 12K miles per year, but it is also one of the most effective tools dealers have for really sticking it to customers. Buying a car is a relatively simple transaction, but leasing involves a lot more variables, any one of which can hurt you. Read the fine print, including basis, downpayment, residual value, damage deposit, early termination fees, maintenance, and on and on.  And what happens if you total a leased vehicle and are forced to terminate the lease?  Does your insurance pay the termination fees or does it come out of your pocket?
Mar 23, 2014 3:15PM
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Good article, thanks.  If you're in California or Florida (and maybe a few other states, I'm not sure), check out www.otozip.com.

I used to buy my cars but after a couple of very expensive out-of-warranty claims (even with an extended warranty) and problems with selling/trading in my cars, I decided leasing just offered more peace of mind.  I've been leasing since 1999 and I would never go back to buying.  I also get to upgrade my car more often and with technology changing so rapidly, I like to always have the latest and greatest.  Leasing is like renting a car, so while everyone likes to "own," I figured I ultimately sell the car anyway, so I never owned it forever.  Otozip also has some good leasing info at http://otozip.tumblr.com.
Mar 22, 2014 3:31PM
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You're right, leasing can be incredibly confusing. As a former car salesman, I realized that many people choose not to lease simply because they don't know how it works and it seems too overwhelming to try to learn. That's why I wrote a comprehensive, yet concise guide to leasing, so people can educate themselves. It's called Time To Lease and is available on Amazon Kindle. Anyways, great article!
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