Many car shoppers see leasing as nothing more than glorified renting due to the lack of ownership and restricted mileage. However, none of these detriments make leasing worthless. There are several big perks to leasing a car, including lower monthly payments and in some cases better incentives.
Reasons to aim for lower monthly payments at the cost of mileage will vary, but they do exist. For instance, maybe you live in a big city, like Toronto, where driving is not always optimal, but you would still prefer to have a car on hand for occasional trips to Costco or out of the city. Why would you pay $400 or more per month for a car you barely drive? The answer is you wouldn’t. Instead you would lease one and pay $200 or less.
Here are the steps you need to take to make that happen…
1. Understand How Leasing Works
Before unearthing a brilliant leasing deal, you need to understand how leasing works – and what sets it apart from financing.
The cliché is that financing lets you become a vehicle owner and leasing doesn’t. However, this isn’t exactly true. Financing lets you become a car owner only after the drive away price is fully paid off – with interest. If your loan term is particularly long, like 60, 72 or 84 months, then you won’t truly own the vehicle you’ve “purchased” for five to seven years. And by the time you do become the owner, your vehicle will be old enough to be sold and replaced. The startling trend is that many Canadians go for loan terms that last 72 months or longer – as pointed out by J.D. Power and Associates – which means that many of us don’t really own our cars.
Leasing, on the other hand, would never allow you to become an owner, but it would let you drive a vehicle for a significant length of time – usually three or four years. Since your time with the car is limited, you will be asked to pay only a piece of its full price – the value it’s estimated to lose while in your possession. For instance, if over the course of three years the car you are leasing is expected to depreciate 56 per cent, then that is the amount you will cover in your monthly payments.
No, you won’t be able to resell the car when you are done with it, but you won’t have to invest much into the next one either – if you choose leasing again.
2. Make a Proper Down Payment
If your main goal is to lower your monthly payments, then you should consider making a greater down payment.
For instance, if you decide to lease the 2015 Volkswagen Golf 1.8 TSI Trendline (MSRP: 20,395) for 36 months with a 25,000 kilometre allowance and a 0.90-per-cent lease rate, without negotiating the price, making a down payment or applying any incentives, you would pay $382 per month. And before you consider financing the car instead, be aware that the Trendline would cost $704 per month under the same circumstances – almost double the price of leasing.
However, if you make a $5,000 down payment, your monthly lease payments would be reduced to $223. Granted, $5,000 is a huge amount of money, but if you make the down payment right then and there, you won’t have to worry about huge monthly payments down the road.
3. Find the Latest Incentives
Regardless of whether you can make a solid down payment on a new-car lease or not, you should be on the lookout for big incentives because they can definitely lower your monthly payments.
For instance, you can currently lease the 2015 Honda Civic Sedan DX (MSRP: $15,750) with a manual transmission for $297 thanks to a $1,000 after-tax incentive, 4.99-per-cent lease rate and 24,000 kilometre allowance. If you throw in a $3,000 down payment, then your monthly payments will go down to $196. And if you are also a smart negotiator, you can make that number even lower.
4. Change Your Kilometre Allowance
Another way to lower those monthly lease payments is by reducing your kilometre allowance.
Let’s go back to the 2015 Honda Civic example here. If you make a $3,000 down payment on a 36-month lease term, but if you lower your kilometre allowance from 24,000 to 20,000 a year, your monthly payments will be reduced from $196 to $187.
This fix may not work for everyone, but if you are not planning to drive your car often, its kilometre allowance is definitely something worth looking into. In some cases, it’s possible to make your kilometre allowance as low as $8,000.
5. Use an Online Lease Calculator
As you can already tell, there are a lot of numbers involved in calculating car lease payments. Fortunately, you don’t have to be a good mathematician to figure them out. All you need is a solid online calculator to do all the work for you, such as the one from Unhaggle.com.
To use the calculator, select the length of your payment term and your kilometre allowance. After that, enter your down payment amount and you should see your potential monthly payments right away.
Aside from letting you find out your monthly payments, this particular calculator will also show you the MSRP, Average Price and Dealer Cost of the base model and all its options, along with the incentives, mandatory fees, car lease rates, sales tax and final price.
So, if you doubt that you can make your monthly lease payments lower than $200, play around with our car lease calculator and you will see that it’s much easier than you think!