How much car you can afford to lease ultimately depends on your own budget and finances. Leasing a car can be costly, and not everyone will qualify.
Four Things to Consider Before Leasing
Before you head to a dealership, make sure you double check if leasing is right for you. Leasing a car can cost more money in the long run compared to taking out a loan and purchasing a car. Leasing is also hard to qualify for if your credit is less than stellar. When thinking about leasing, keep these four things in mind:
- Monthly budget – Instead of paying for the entire vehicle, in a lease, you pay for the time you use the car, and that includes the vehicle’s depreciation plus interest charges. So, generally, monthly lease payments are cheaper than financing it.
- Available savings – Because down payments aren’t typically required in a lease, you won’t need to save up for one. But, if you want, reducing the capitalized cost with a down payment will decrease your monthly payment.
- Amount you drive – The tricky part of leasing is the mileage limit. If you aren’t sure how much you plan to drive during the lease term, you could be wasting money on additional mileage (usually 15 cents per mile if you buy at the beginning). If you end up driving over the mileage limit, you’ll be required to pay over-mileage charges (typically 25 cents per mile). This can add up quickly if you aren't careful.
- How long you plan to keep the car – You’ll need to know exactly how long you want to drive the car for. It can be costly and difficult to end a lease early, so changing your mind after signing isn’t a practical option.
Calculating the Cost of Leasing
Once you’ve determined that leasing is for you, it’s time to calculate the cost. Using online tools, you can calculate just how much your anticipated lease will be. Here’s what you’ll need (with an example):
- MSRP of car: $18,000
- Final negotiated price: $15,000
- Cap Cost Reduction or a leasing down payment: $1,070 ($1,000 plus seven percent tax)
- Sales tax: Seven percent
- Lease length: 48 months
- Interest Rate: 4.5 percent
- Residual Value (estimated value of the car at the end of the term): $7,500
When you crunch these numbers, you get these results as your estimated lease cost:
- Total Monthly Payment: $188.03 ($175.73 base payment plus seven percent use tax)
- Lease price: $14,000
- Depreciation Charges: $135.42 per month
- Interest Charges (lease fee): $40.31 per month
The Bottom Line
If you need a vehicle but your credit is poor, qualifying for a lease will be extremely difficult. While we can’t help you lease a car, we at Auto Credit Express have another solution. We connect car buyers with local special finance dealers who have the lenders available to work with unique credit situations. Take the first step and fill out our free auto loan request form today.
