HOW DO VEHICLE LEASES WORK?
Leasing allows you to drive a vehicle from a dealership for a set period of time and miles, and pay for the use of the vehicle rather than the entire purchase price.
Much like a car loan, lessees will make monthly payments on their vehicle. However, unlike a car loan, the monthly payments for a leased vehicle are based on the car’s anticipated depreciation over the course of lease term, not the overall value.
Leases from Proctor Acura are available in 2 - 4 year terms, and each lease term is measured in months (ex: 2 years would be a 24 month lease).
Leases shorter than 2 years are not available through the dealership. A major benefit to 2-3 year leases is that the warranty on a new Acura is for 36k miles or 3 years, meaning that there is little risk for out-of-pocket repair during the lease.
At the end of the lease, simply drive the vehicle back to the dealership for an end-of-lease inspection. The dealership will look at the vehicle to ensure that the mileage limit was not exceeded and that the car was not subjected to excessive wear and tear.
Keep in mind that if your lease was for 36 months, the dealership will be anticipating your car to have 3 years’ worth of wear and tear from normal use. So don’t fear every little scratch or minor ding!
There are typically three options on how to proceed at the end of your lease:
***When you return your lease to the dealership, don’t forget to also bring in any extra keys and floor mats that came with the vehicle.
When your lease ends, you may encounter a disposition fee (flat rate agreed upon at beginning of lease that dealers use to prepare the vehicle for resale) or a purchase fee. Aside from the above fees, you may need to settle up for mileage overages or excessive wear/tear charges.
You will select an annual mileage amount at the beginning of your car lease and that mileage amount will become a limit that you need to observe while driving your leased vehicle. The reason you are required to designate a mileage limit is because your monthly lease payments will be based on anticipated vehicle depreciation over the term of your lease. More mileage means greater depreciation.
For people who choose to lease a car, it is a good idea to determine approximately how many miles you drive per year before entering into a car lease in order to avoid paying mileage fees later. Drivers are charged for every mile driven beyond the agreed upon mileage limit, and miles cannot be bought mid-lease.
Fortunately, Acura’s rates for exceeding miles do not exceed $0.20 PER MILE.
Most car leases allow from 10,000-15,000 miles on the vehicle per year. Higher mileage leases are available (ranging up to 30,000 miles per year), but cost more.
Generally, people with credit scores 700 or higher are eligible for Acura’s best leasing rates. A good credit score is required to lease a car, and generally dealerships like to see a score of 650 or higher.
In addition to the key differences above, learn more about the differences in buying or leasing a vehicle here.
One of the biggest advantages to leasing is a concept called “residual value”.
When you first select a car to lease from the dealership, the car is worth the full sticker price on the window. Residual value is an estimate of how much of that original value will be retained by your car after your lease term. The vehicle will depreciate (lose value) over the lease term, and the dealership will estimate the amount of depreciation based on car mileage and years driven. A great added benefit to leasing is that the lease company (NOT YOU) will assume the risk for market factors outside your control (i.e. collsions, CarFax hits, multiple recalls, high gas prices lowering vehicle values, vehicle becomes undesirable, vehicle recalls, etc.) At the end of your lease, if the car is worth less than the expected residual value, the customer never takes the loss.
Other advantages to leasing a vehicle is that the monthly payments are typically less than monthly auto loan payments.
Drivers who lease can always enjoy the benefits of driving a new vehicle, since there is an option to trade up to the most current model with newer technology and safety features at the end of every lease term.
Leasing is a wonderful option for people who want to avoid some of the hassles of ownership such as repairs, maintenance, and resale. Since leased vehicles are almost always under factory warranty, there are seldom repair costs for drivers, and they can walk away from the car at the end of the lease without having to spend time and energy trying to resell it.
Drivers are free to tint the windows on their leased vehicle as long as the tint is compliant with state laws. Drivers can also accessorize their vehicle as long as they use manufacturer/factory accessories. After market accessories are not allowed on leased vehicles.
Insurance on a leased vehicle is very similar to a purchased vehicle. Collision and comprehensive coverage are required on every leased vehicle. GAP insurance is always recommended on leased vehicles, and is included with every leased Acura.
Understanding GAP insurance:
GAP is an acronym that stands for Guaranteed Asset Protection. GAP insurance protects the drivers of leased vehicles from incurring personal repair or replacement costs if their leased car is stolen or totalled.
GAP insurance is meant to be used in tandem with collison and comprehensive coverage insurance. Since the most significant vehicle depreciation occurs in the first year or two, there is a chance that if a leased vehicle is totalled, the driver may owe more on the lease than the actual depreciated value of the car after the collision. GAP insurance allows the drivers to avoid paying out-of-pocket for the difference between the amount owed and the depreciated value.
If the leased vehicle is totalled, the lease will terminate before its term.
If your leased vehicle has repairable / minor damage stemming from an accident, simply have the repair work completed, allow your insurance company to pay for the repairs, and turn in your leased vehicle when the lease term is over. Even if your car’s depreciated value after the accident is less than the residual value (the amount of depreciation calculated at the beginning of your lease), you will not owe money for the difference.
If you leased a vehicle using the captive finance company (i.e., Acura Financial Services, Honda Finance, etc.), the company will typically grant drivers the option of returning the vehicle to any dealership of that particular brand in the United States. Be sure to check the details of your lease and update your lease company of your move immediately.
Be sure to update your license and registration in the state where you become a resident. Also, note that your sales tax rate may be different between states, which could change your monthly lease payments slightly. Some states (Georgia) require taxes on vehicles in one annual payment.