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How to Lease a Car the Right Way

While leasing a car can be a great way to ensure you’re always driving newer models, the leasing process can be something of a mystery. There are all sorts of unusual terms you need to understand, the payment isn’t based on the entire value of the car and you’ll still need to negotiate the selling price upon which your lease is based.

With these concerns in mind, here’s how to lease a car the right way.

Review Your Credit Report First

One of the factors determining your monthly lease payment (as well as whether you’ll qualify for a lease in the first place) is your credit history and the resulting score it dictates. So, visit AnnualCreditReport.com to get a free copy of each of your three credit reports from Experian, Equifax and TransUnion before you set out to lease a car.

Look them over for inaccuracies and get any discrepancies you find corrected before you go any farther. The higher your credit score, the lower the interest rate you’ll be expected to pay and the better the lease deal you’ll get as a result. Knowing your credit score and what it qualifies you for is a useful negotiating tool.

Pay Attention to Residual Values

Before you settle on a particular model, look at all of the cars in the category best suited to your needs to determine which ones have the highest residual values. Low residuals result in higher monthly payments; higher residuals bring lower payments.

A good place to start is with the winners of the annual . Each year, this publication recognizes vehicles in 27 segments that are forecast to retain the highest percentage of their Manufacturer’s Suggested Retail Price after a three-year period. If you’re looking for a car likely to best hold it’s value, this is where you’ll find one.

Review Manufacturer Specials

Toward the end of a model year (and at various other times of the year) car builders offer special to help their dealers clear showrooms. These can be especially attractive deals. Manufacturers sometimes subsidize them, or offer exceptionally low interest rates to help make the monthly payments more affordable.

You do have to read the fine print carefully though. Be certain you’re not agreeing to some insanely low annual mileage figure or some outrageously high down payment. In other words, make sure everything else about the offer is favorable before you’re irretrievably bound to a low monthly payment.

Determine the Car’s Market Value

Just as with a purchase, you have to perform your due diligence to make sure you’re getting the best possible purchase price for the car. Most of the moving parts of the deal are based upon the selling price you negotiate.

To be an effective advocate for yourself, you have to know what other people in your area are paying for a similar car. Consulting resources like the National Automobile Dealers Association guide, Edmunds.com and Kelley Blue Book can help you discern those figures.

Shop Around

Rather than agreeing to a purchase from the first dealer with whom you speak, shop the numbers you get around to see if anyone is willing to offer you a better deal. Here though, it’s important to price the car as if you’re buying rather than leasing.

In fact, don’t even mention a lease until you negotiate the best price you can get. It’s easy for salespeople to divert you into discussions of monthly payments on a lease—while charging you a higher price for the car. Meanwhile, the lower the selling price you negotiate, the lower your monthly payment will be anyway.

Lock It In

Once you’ve found the car you want — at the best possible price — tell the salesperson you’d like to lease the car. Be very specific about what you want in terms of annual mileage, the length of the lease and the down payment you want to make.

Ask about the interest rate, which you’ll probably be told is a “money factor” of some seemingly indecipherable figure. Whatever they quote, to determine the effective interest rate. You’ll be able to tell whether or not you’re getting a good quote If you did your research to see what interest rate your credit score earns.

One more thing: Always make sure the lease contract includes gap insurance in case the car suffers a catastrophic event and is declared a total loss. This will save you from having to pay off any remaining balance out of your pocket after the insurance company settles.

As complicated as it seems, the process is really quite simple once you sink your teeth into it. What’s more, knowing how to lease a car the right way helps you get the car you want at a price you can afford.

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