Advertisements are meant to grab our attention and motivate us to take certain actions, like leasing a car. So, ads for lease deals on vehicles usually emphasize their most attractive features — low monthly payments and access to the hottest new models. However, what looks like the lease deal of the century may in fact be too expensive for your budget or have other drawbacks not apparent at first glance.
Here are some tips on evaluating an advertised lease deal so you can come out ahead.
Look Up Residual Value
Some vehicles hold their values better over time, which means you’ll end up paying less over the course of the lease to use them. As Edmunds advises, the higher the percentage of its value a vehicle is projected to hold, the lower the monthly payments tend to be. Choosing a vehicle with a high residual value can potentially save you hundreds of dollars per month on your payment — while choosing a low one can end up costing you more.
This may also explain why you’re sometimes able to get behind the wheel of a costlier model for nearly the same price as a less expensive vehicle; the residual value on the more luxurious car could be higher.
Consider the Cap Cost
One thing you’ll want to avoid when evaluating a lease deal is deciding based on monthly payments rather than “cap cost,” or the capitalized cost. Advertised lease deals emphasizing monthly payments of only $299 may sound incredible, but do not provide all the information you need to understand whether you’re really getting the best bang for your buck. For instance: How long is the advertised lease? How much is due at signing? Are there any limitations, like mileage restrictions? Instead of getting swept up in the monthly payment figure, step back and check out the cost from the top down.
Looking at cap cost — or the total amount the lease is based upon — gives you a better view of the big picture, and makes it easier to compare different deals available to you.
Calculate the Interest Rate
Another important factor to keep in mind when you’re looking at lease deals is how much you’ll pay in interest. Here you’ll have to perform one extra step over buying: Converting the money factor, which is a decimal, into the annual percentage rate (APR). You can achieve this by multiplying the money factor, also referred to as a “lease factor,” by 2400.
So, a money factor of .002 translates to an APR of 4.8 percent. Be aware lenders sometimes express money factors as already multiplied by 1,000 — like 2.0, in which case, you’ll multiply it by 2.4 to calculate the true interest rate.
Factor in Sales Tax and Fees
Vehicles purchases can also entail sales tax as well as registration and use fees. The “sticker price” you see listed in the advertisement generally omits those. Crunch the numbers to see how much fees and taxes will elevate your monthly payment before you decide whether or not to go ahead with a lease deal.
Evaluating an advertised lease deal is a matter of digging into factors beyond the monthly payment — like the taxes, fees, interest charges, residual value and overall cost of the vehicle. Very rarely is the price quoted in the advertisement the exact amount you’ll end up paying if you take the deal.
In other words, it’s best to think of ads as the starting point from which you’ll do your research.
