Are you sure you're ready to lease your next car? What if the salesman tries to bamboozle you with talk of "cap cost reduction" and "money factors"? Will your eyes glaze over in reaction to this double-talk? Or will you know what he is really saying?
You can confirm your level of preparedness by taking our leasing quiz. Give yourself one point for each correct answer. Buyers who score above eight can proceed with confidence. Buyers who score below seven better take an ex-car salesman along with them. Those who score below five might want to get ready to file for Chapter 11.
- Leasing is too complicated for the average consumer to understand, so just smile knowingly and hope the salesman doesn't charge you too much. True or false?
- Even if you are confused by leasing, you can usually get a good deal by soliciting quotes from multiple dealers. True or false?
- The interest rate in a lease contract is called:
- The capitalized cost
- Money factor
- There is no interest rate in a lease contract
- When you lease a car, there is no negotiating. The price is set by the dealer or the bank and you basically have to take it or leave it. True or false?
- To maximize the benefits of leasing, you should lease a car for:
- 36 months
- 48 months
- 60 months
- When you lease a car, you pay less sales tax. True or false?
- Which of the following words has nothing to do with leasing?
- Cap cost
- Residual value
- Debt-to-income ratio
- Money factor
- Gap insurance
- If you get a small scratch on your leased car, you will be charged the cost of repairing it at the end of the lease. True or false?
- Which lease is the best one for you?
- Leasing doesn't make sense because I make all those payments and then I turn the car back in at the end. I have nothing to show for it. True or false?
- False. Leasing is complicated but there are several easy ways to control the transaction. And we're not talking Jedi powers here, either. Read on and the basic elements of leasing will be revealed in later questions.
- True. However, make sure you are comparing apples to apples. In other words, decide the terms of the lease: length (we recommend 36-month leases), number of miles and drive-off costs. Also, make sure the cars you are comparing are the same trim level with the same options. If all these things are the same, you can see where you will get the best deal.
- 2) Money factor (sometimes called "lease factor"). The money factor is written as a multiplier, not a percentage so 9 percent would be expressed as .00375. To convert the lease factor to a percentage multiply by 24; to convert the percentage to a money factor, divide by 24.
- False, false, false! Leases are as negotiable as a sales contract. In fact, a bad lease can cost you more than a bad purchase.
- 1) 36 months. One of the reasons to lease is so that you can change cars frequently. Also, if you lease for 36 months, you minimize your maintenance costs since the car will always be under warranty.
- True. Most states only charge sales tax on the monthly payment. If you hate taxes, you'll love this aspect of leasing. However some states, like Texas, charge sales tax on the entire selling price of the vehicle (the capitalized cost, in lease terminology).
- 3) Debt-to-income ratio. If your car salesman starts talking about this, watch out! He's trying to leverage your house since debt-to-income ratio is used in the mortgage business but has nothing to do with leasing. The other terms cap cost (also called "capitalized cost"), residual value, money factor and gap insurance are all terms you might encounter when leasing. See our leasing glossary to learn more.
- False. The lease contract allows for "normal wear and tear" so minor damage should not cost you anything. However, it's a good idea to get your car washed and vacuumed before returning it at the end of the lease.
- 2) Close-ended. This means you can turn the car in at the end of the lease without making any further payments (although you might be held responsible for excess mileage and damage to the car). In an open-ended lease, you may be responsible for further costs.
- False. Your money has allowed you to drive a new car for less than it would have cost you to buy it. And even when you buy a car, you are usually "upside down" (meaning the car you purchased is worth less than you owe on it) for several years.