Four Things to Know About Leasing a New Vehicle

Are you in the market for a new car and wondering if you should purchase a new vehicle or lease one? Before making a purchasing decision, make sure you fully understand what it means to lease a car.

1. Explanation of a Lease

If you aren’t familiar with the term, a lease is when you rent a newer model from a dealership but you are only paying for a portion of the car’s actual cost as opposed to having to pay for the whole price of the vehicle. Once the lease term is over, you will not own the car and you will need to give it back to the dealership or trade it in for a new lease. The upside of leasing a vehicle is that you’ll have the luxury of driving a newer model with the ability to upgrade every couple of years. On top of that, the monthly car payments will be lower than if you were to purchase the vehicle.


2. How Leasing Affects Your Credit Score

If you make your monthly payments on time, leasing a vehicle can improve your credit score in the long run. Thirty-five percent of your FICO credit score comes from your payment history, so that also means if you neglect your payments and often pay your bill late, you will notice a dip in your credit. To determine your FICO score, an individual’s credit information is used to predict their future behavior. The data that is collected is then used to determine the risk associated with lending them a large sum of money.

3. Fees to Keep in Mind

You will want to keep the following fees in mind before you agree to lease a new vehicle. Factor all of these into your total cost in order to determine if you can afford a new lease.

  • Down Payment: The amount of money you will pay up-front towards the lease of your vehicle.
  • Acquisition Fee: Sometimes referred to as a bank fee or administrative fee, it’s what you will be charged to arrange your lease. It is typically between $395 - $895, depending on who you lease through and the vehicle you choose.
  • Security Deposit: Although this fee is not always required, it is usually equal to or slightly greater than your monthly lease payment and is due at signing.
  • Documentation Fees, Tags, Title, License, and Registration: Documentation fees can range from as low as $50 to upwards of $700, but are required. The other fees are official state and local fees the dealer will pass on to the government on your behalf.
  • Sales Tax: If you make a down payment on your auto lease, you will be charged state and local sales tax. Minnesota requires the entire sales tax to be paid up front, based either on the sum of all lease payments or on the full sale price of the vehicle.

While this is not a comprehensive list, it is some of the more common fees you will run into when leasing a vehicle. Talk to your dealer if you are confused about any of the fees you see listed in your lease agreement.

4. Who Pays For The Repairs

It may come as a surprise that while you are leasing a vehicle, even though you don’t own it, you are responsible for any repairs that arise. You may get lucky and not have a lot of repairs needed during your lease, and while we certainly hope this is true, accidents do happen. If the vehicle suffers a broken windshield, a ding in the door, or chipped paint while you are in possession of it, you will be paying out of pocket what your insurance doesn’t cover.

Some dealerships will offer you free tire rotations and oil changes, as long as you bring the car in on a frequent basis and stick to a maintenance schedule. Speak to your car salesmen before you sign on the dotted line.

Categories: Rental, New Inventory, Finance