Tell me about leasing a car. Never done it and need advice.

[Anonymous]

We are moving back to DC after living abroad with no car. Right after we land in DC, we want to take a 1 month road trip around the mid Atlantic and northeast to visit family and then we will be in DC for at least one year (before potentially moving with in the US. We will eventually buy a car, but we thought it might be easier to lease for a year while we decide what we want. I have never leased a car before. Does this plan make sense? What do I need to know about leasing a car?

[Anonymous]

You should know that car leases are typically 2 or 3 years long, so be sure you’d want to keep the car for at least 2 years.

Before the pandemic impacted car production volumes, you could get pretty decent lease deals on some brands. Now it is rare to get a deal so you are paying a premium to lease.

Some brands don’t like to lease so their leasing costs are pretty bad.

There is a website called swaps lease that you might look into, it lets you take over someone’s existing lease.

Another option is to just buy a used car that doesn’t depreciate much like a Toyota Camry and then sell it in a year or two when/if you move again. But DC taxes car purchases so this only makes sense if you buy a cheaper used car.

Also recommend going to watch a few YouTube videos about how to lease a car.

[Anonymous]

Make sure you understand the tax implications - for example, in Virginia, you'll pay sales tax on the entire vehicle, plus annual personal property tax on the entire vehicle annually - even though you don't OWN the vehicle.

DC may be different, but in case you are saying DC to mean the DMV. I would never lease again in VA now that I understand this...

[Anonymous]

Anonymous wrote:We are moving back to DC after living abroad with no car. Right after we land in DC, we want to take a 1 month road trip around the mid Atlantic and northeast to visit family and then we will be in DC for at least one year (before potentially moving with in the US. We will eventually buy a car, but we thought it might be easier to lease for a year while we decide what we want. I have never leased a car before. Does this plan make sense? What do I need to know about leasing a car?

Leased cars have a certain amount of mileage allocated for each year - so lease might allow anywhere from 10K miles - 15K miles per year; so for 2 years that would be 20K - 30K
If you exceed the mileage at the end of the lease period, you will have to pay an additional fee and if you do exceed the mileage they will start considering anything that would normally be "wear and tear" as excessive
Now they do remove the fees if you agree to turn in the leased car and lease another right away with them or buy one from them or the other option is you can buy your leased car but that is almost never a very good deal

[Anonymous]

Leasing is a terrible financial proposition right now. Few manufacturer incentives. High interest rates aka “money factor.” Residuals (the value of the vehicle at the end of the lease expressed as a percentage — remember you are only paying for the cost of depreciation over the lease period plus taxes) — are somewhat higher due to market conditions. It’s a decent option if you can write off payments as a business or sole proprietor.

You can look for information about specific vehicles on Leasehackr.com. There are a few highly knowledgeable brokers who post there and can guide you through the process. Depending on market conditions, you can explore buying out the lease early and pocketing any “equity” (that is, the market value in excess of the contractual depreciated value after accounting for sales/transfer taxes) by selling back to a dealer or to a third party through private sale.

If you’re looking at an EV lease be aware that not all lease originators pass the federal tax credit through to the lessee. Also be careful about putting too much down at closing as a means of reducing your monthly payment. If the car is totaled you likely won’t be able to recoup that payment.

[Anonymous]

When you are leasing, don't focus on monthly payments (that will only distract you from the actual values of importance). The monthly lease is calculated as follows based on the depreciation [(New Price) - (used value)] during the lease:

depreciation / (length of lease in months) * (money factor which is based on the interest rate).

The used value varies slightly based on how many miles you expect to drive during the lease, but the used value, length, and money factor are otherwise fixed. So you should treat a lease negotiation like a buying a new car and try to negotiate the new car value as low as possible. The dealer markups, taxes, and dealer processing fees are added to the "new price" while a down payment and dealer incentives is deducted from the "new price". So if you lease a car that is marked up (like a Jeep Wrangler that are currently marked up on average by 8500 over msrp), your lease is going to be very high because you will have to pay for this markup through your lease (about 8500/36 or $236 per month over a three year lease just to cover the markup).

Don't get fooled by very low advertised leases (VW is notorious for this) because it generally includes a significant down payment to lower the monthly lease prices.

[Anonymous]

OP
Leasing now is not a good idea. Buy something and then sell it when you don't want it to Carmax, they make it easy.

If you are sure you want to lease.

1. Never ever longer than a 3-year lease.

2. You are considering doing a lot of driving leases that have miliage rates. 10,000, 12,000 or 15,000. You pay for these rates. If you go over then you pay even more. Pay attention to this part can be very expensive.

3. Residual value - buy out of the car at the end of the lease pay attention to this number

4. Cap reduction is the terminology car companies use to get you a lower payment. On a leased vehicle do not do this. Basically using your cash you will never get back to make that payment lower. If you were buying the car then yes put cash down. Leasing do not.

5. When the lease ends you have nothing. Will need to most likely lease again. Not a great finacial cycle.

[Anonymous]

If you plan to put on many miles you’re better off renting for the month vacation and buying when you get back

[Anonymous]

Why do you need a car in DC?

Get a thirty day rental for your road trip and then go car less for a year.

[Anonymous]

Anonymous wrote:OP
Leasing now is not a good idea. Buy something and then sell it when you don't want it to Carmax, they make it easy.

If you are sure you want to lease.

1. Never ever longer than a 3-year lease.

2. You are considering doing a lot of driving leases that have miliage rates. 10,000, 12,000 or 15,000. You pay for these rates. If you go over then you pay even more. Pay attention to this part can be very expensive.

3. Residual value - buy out of the car at the end of the lease pay attention to this number

4. Cap reduction is the terminology car companies use to get you a lower payment. On a leased vehicle do not do this. Basically using your cash you will never get back to make that payment lower. If you were buying the car then yes put cash down. Leasing do not.

5. When the lease ends you have nothing. Will need to most likely lease again. Not a great finacial cycle.

No. #5 is the reason I cannot understand for leasing a car.
Why not outright purchase an actual vehicle so that your monthly payment is not all in vain?