When it comes to getting a new car many people consider leasing over purchasing. Leasing has many great pros depending on your lifestyle and needs. Many people love the luxury of driving a brand new luxury vehicle every 3-4 years and leasing payments are significantly lower than loan payments. We will discuss all you need to know about auto leasing and how you can lease a vehicle if you’re interested in giving auto leasing a test drive.
What Is It?
An auto lease is a method of long-term vehicle renting. When you lease a vehicle you are agreeing to drive a vehicle for a set amount of time, with covered in-house maintenance, at a lower cost than an auto loan. An auto lease is similar to an auto loan in that a lessee (the one leasing the car) can pay a down payment upfront on the lease to lower the overall monthly payments. You may still purchase GAP (Guaranteed Auto Protection) coverage as you would with an auto loan. GAP coverage covers the difference in the amount you still owe on a lease or loan and the actual value of the vehicle in the case of damage or stolen vehicle.
Some leasing dealerships allow you to finance through a bank but the majority will do the financing and lease agreement all through the dealership for simplicity. Similar to leasing a cell phone for some time and awaiting an upgrade in the next year or so. Auto leasing works Similarly.
Overall there are a lot of great reasons to leave an automobile such as ease of maintenance, lower monthly costs than an auto loan, new vehicles every few years, and so many more. The biggest downside to leasing a vehicle is the mileage constraints. If you lease a vehicle, they usually put mileage restrictions on how much you can drive per month in a given year. When you exceed these mileage constraints you pay more, they don’t roll over in most cases and the fees can get quite high. So if you have a long daily commute a lease may not be the best option for you.
How to Get It
Getting an auto lease can be quite tricky as most dealerships have a lot of stringent eligibility requirements which we will discuss a bit later. The biggest factor that determines whether or not you can get an auto lease is credit. You must have a good credit score to secure an automobile lease. This is because the dealership is leaving a high dollar vehicle in your hands for a set amount of time and they want to make sure that you are trustworthy when it comes to timely payments.
A history of poor or late payments would likely make it so that you would be ineligible for an auto lease. Dealerships have this practice set in place to protect their products. When you have a vehicle loan, the bank can simply repossess your vehicle after a set number of missed payments. When you lease a vehicle, the lessor must go through law enforcement and report your vehicle stole. This then involves a lengthy lawsuit of some form costing the dealership a large amount of non-recoupable funds to get the vehicle returned to them. For this reason alone, a good credit score is one of the largest factors in getting approved for an auto lease.
As described previously, credit is the number 1 factor that determines your eligibility for an auto lease. You would usually need a credit score of 724 or higher according to Equifax. A credit score of 700 is considered good so you would need to be above good to be considered eligible for an auto lease.
There is more than just credit that weighs into eligibility. Another requirement is your debt to income ratio. Most dealerships require you to make 3 times more than what the monthly payment would cost you before they are willing to approve you for a lease. For instance, if your monthly lease were $400, you would be expected to have a minimum monthly income of $1200. This also includes any other debt you have such as rent/mortgage, health insurance, utilities, etc. The higher the expenses the more the dealership is going to require you to make in a monthly income before you will be approved for an auto lease.
Another requirement most leases require is full comprehensive automobile coverage for the duration of the lease. The dealerships can require this because you don’t own the vehicle. This means if you total the vehicle, they are covered via your full coverage insurance plan for replacement of the vehicle if it is totaled. This not only protects you but also protects the dealership as well. So although you are getting a cheaper monthly car payment, your monthly car insurance premium will be a bit higher in most cases.
Let’s Wrap Things Up!
Automobile leases are a great way to go if you like to drive something new every 3-4 years. You also, get a break on scheduling maintenance and the cost of maintenance. It’s important to make sure your credit is up to snuff before you go to apply for an auto lease. If your credit isn’t where you want it to be you could benefit from credit repair services before you begin shopping. You also want to ensure you meet other age, financial and insurance requirements before seeking out an auto lease. Overall, it’s a great option for many reasons, just a little more difficult to be approved for over an auto loan.