Luxury Cars and Resale Values

When it comes to ultra-luxury, high-end vehicle leasing, there is no doubt
that the best deals are those cars that hold their value. With this in
mind, we single out a few truths about residual values that consistently
apply to high-end leasing.

The most determining factor when it comes to resale values is public
perception of the brand, not its reliability ratings in quality surveys.
Take the Jaguar for example: it is consistently rated as a quality car, but
because of questionable reliability perception among the public, it takes a
sharp dip in value at the end of its lease-term

Higher-tech options and other cutting-edge features do not necessarily mean
the car will fare better. By the time your car is two years old, better
and cheaper systems will render the laser-guided cruise control, navigation
systems and built-in cell phone obsolete. Look for functional features,
such as automatic transmissions, power windows and wheel-drive to enhance
the vehicles value in the used-car market.

Used-car buyers view less favorably luxury vehicles that come with big
incentives. These are perceived as questionable in quality and
reliability.

Leasing with bad credit

Have you been refused a car lease? Chances are you have less flawed credit
history. Know whats involved and what you can do to build good credit
history.

Credit score is a measure of your credit worthiness used by leasing agents
to determine whether you are eligible for a lease. You credit score is
based on your past and present credit history, and can range anywhere from
350 to 850. A measure above 720 is considered a prime score and will
land you the best rates. If you are below 640, then you are sub-prime
and will be considered bad rating by the bulk of leasing agents. This is
where all the trouble in getting that lease comes from.

Ask for your FICO Credit Score from the Fair Isaac Corporation (FICO)
which details your credit score held by all three leading credit score
agencies in the country. Compare the three credit scores and determine if
any agency is holding erroneous credit data about you. Contact the
reporting agency and getting corrected.
If there are no mistakes in your credit report, then you can take some
steps to maximise your score to go above the threshold of 640. Pay your
bills on time and pay down any credit card debts you have. Do not take any
new accounts as this might increase the likelihood of you getting into bad
credit thus worsening your credit score.

Leasing used cars explained

Leasing a used vehicle can be an attractive deal in many ways, no least
getting you into that luxury model or SUV, for lower monthly payments than
a brand new one. Be prepared, however, to do some more homework to dissect
a good deal.

As with new car-leasing, your price research should focus on the key
figures that are the initial market value and the estimated residual value
of the used car. This is harder to predict since there is no factory-set
sticker price on used cars, and the residual percentage is very much pegged
to a subjective current retail value. Use different sources to get a rough
idea of the value of the used car: your local dealerships, internet
car-evaluating tools, such as Edmunds.com and Cars.com, to name but a few.
Another way to pin down a good estimate is to compare the lease on your
given car to a lease on a new-car with the same make and model. This should
give you a better picture of the difference between leasing new and going
for used. Just like leasing a new car, used vehicle leasing is more
attractive when residual values depreciate the least. You stand a better
chance of finding a bargain in the high-end, luxury vehicles that keep
their values better as used cars.

Next, you need to check the initial mileage and the overall vehicle
condition. The maximum mileage on a used car should be no more than 12,000
miles a year. A 3-years old car with 50,000 miles on the clock is very
unlikely to make a good used-vehicle lease. Check for signs of excessive
use, like worn seat fabric, worn pedal pads and dirty engine, which might
indicate that the odometer has been rolled back. If the car is not
certified, you need to get it thoroughly inspected. Ask your dealer for a
manufacturer-sponsored certification program or have your car certified by
a qualified mechanic or inspection service.

Most used-car deals dont come with gap coverage. This is a special type
of coverage, normally offered on a new auto-lease, to cover the consumer if
the leased vehicle is lost, stolen or damaged. Typically, auto-insurance
policies cover only what your car is worth at the time of loss, not what
you still owe on the lease. The difference could run into thousands of
dollars. For peace of mind, do not enter into any used-car lease without
gap-coverage. Arrange it separately with either the lease dealer or your
auto-insurance company.

Leasing Glossary

In order to get a good leasing deal, you need to understand leasing jargon.
Read through this leasing glossary to get an overview of the basics:

Acquisition fee: A fee charged by a leasing company to begin a lease. Not
all leasing companies charge an acquisition fee but if charge it starts at
about $300 and is seldom negotiable.

Capitalised cost: The total selling price of the leased vehicle This also
accounts for taxes, title, license fees, acquisition fee and any optional
insurance and warranty items you elect to fold into the lease and pay
overtime rather than upfront.

Depreciation fee:
Forms part of the monthly lease payment charge and accounts for the loss
in the value of the car at the end of the lease. The vehicles list price
minus the expected residual value at lease end is divided by the number of
months in the lease to give the depreciation fee. Suppose you decide to
lease a vehicle with a retail price of $23,500. The leasing company
estimates that after a three year lease, the vehicle will be worth 35% of
its original retail value, or $8,225. The difference, $15,275, divided by
the number of months in the lease, 36 months, gives us the depreciation fee
($424)

GAP insurance Pays off the lease balanced if the vehicle is wrecked, stolen
or totalled.

Inception fees any fees that are due at the beginning of a lease. These
typically include a security deposit, acquisition fee, first monthly
payment, taxes and title fees.

Mileage allowance The maximum number of miles a leased vehicle can be
driven a year without incurring an excess mileage penalty. A typical
mileage allowance is 12,000 to 15,000 miles a year, although this is
negotiable with your leasing company.

Mileage charges a penalty that you incur if you exceed your mileage
allowance on a leased vehicle. Typical mileage charges are 10 to 20 cents
per excess mile.

Money-factor A fractional number, such as 0.00043, used in calculating your
monthly lease payments. You can get a rough estimate of the annual
percentage rate on your lease by multiplying the money factor by 2,400. If
a dealer quotes a money factor such as 3.4 than you can get the equivalent
APR, 8.16, if you multiply by 2.4.

Residual value Residual value is the amount of money the leasing company
says your leased vehicle will be worth when your lease ends. Higher
residual values lead to lower monthly payments but higher lease-end
purchase cost if you decide to keep the vehicle.

Security deposits an up-front amount that your leasing company required at
the beginning of a lease to safeguard against non-payment. This is
generally refundable at the end of your lease.

Termination or Disposition fee The amount you have to pay the leasing
company at the end of your lease if you decide not to purchase the vehicle.

Wear-and-tear charges Extra charges you have to pay at the end of your
lease for any wear and use the leasing company considers above normal

Leasing and your credit score.

Your credit score is part of the leasing decision. When you apply for a
lease, your lease company will typically look at your credit score to
decide whether you to approve the application.

The leasing contract stipulates that you make regular, monthly payments
over your lease term. The credit score you lease company requests
identifies how likely you are to make such payments. It is simply a number
calculated according to a model that takes into account your payment
history, any amounts you owe and credit currently in use.

It is very important to keep a good credit-score, usually above 700, to
qualify for a lease or any other lending decision. Start by ordering your
credit report from Fair Isaac Corp, the company that creates your credit
score. If erroneous data is held about you, then contact the creditor
responsible and get such information corrected.
Your payment history is the single most important factor in determining
your credit score, so get in the habit of paying everything you owe on time
and keep the balances low in your credit cards.

Lease Trading

Ever wanted to terminate your lease early, comfortable with the thought you
werent going to be hit with hefty fees? You can if you transfer your lease
to someone else.

Trading a lease is the best option for people who want to terminate a lease
early and dont want to pay the large termination imposed by most lease
agents. It can also be an alternative to get out of a lease for far less
than you would otherwise pay your original lease company for extra mileage
and wear-and-tear charges that can run into the thousands of dollars.
For a small fee, you can advertise your car lease for assumption to a large
number of potential buyers on the look-out for leases on the Internet. Such
services include LeaseTrader.com, the originator of online lease-trading
and the biggest online marketplace where most lease transfers take place,
and smaller marketplaces such as BreakAlead.com and TradeAlease.com

Before swapping your lease, make sure your leasing company approves lease
transfer transactions. Caution must be exercised in choosing a lease
swapping service: make sure they facilitate the whole lease transfer
process, offer online or telephone customer-service help and registered
buyers undergo stringent credit checks.

Lease Financing

For auto-consumers, crunching the numbers is one of the most difficult and
confusing aspects of leasing.
Take the finance charge on a lease for instance. Most people just dont
understand how this is calculated on capitalised cost AND residual value
instead of just the capitalised cost. For most, it seems plainly obvious,
just as is the case when purchasing, that a charge should be levied on the
capitalised cost of the vehicle.

Well, no quite! When you lease a car, youre only using the car over a
specified period of time with the option of buying the car. The residual
value represents the loan balance at the end of the lease. If you add it
to the capitalized cost and divide by two, youll get the average
capitalized cost outstanding over the lease term. Let us suppose youre
leasing a car with a capitalized cost of $25,000 and a residual value of
$15,000. You average balance over the lease term, irrespective of how long
it is, is $20,000 the sum of the two divided by two -.
Using this sum works because the money factor is the annual interest rate
devided by 24, rather than 12. Continuing with our example and assuming an
interest rate of 6% APR:
$30,000 X (6 per cent / 24) = $75
(Capitalized cost + residual value) X (interest rate / 24) = Monthly
finance charge
This finance charge is added to the depreciation charge to calculate the
monthly payments on your lease.

Independent Car lease companies

To lease, you have two possible choices: either lease through a dealers
finance source or through an independent lease company.
A conventional dealer has a captive finance source, which can be the car
manufacturers financial company, such as BMW Financial Services, Honda
Motor Credit or General Motors Acceptance Corporation (GMAC), or a major
national bank such as Chase Manhattan.
Independent lease companies are no financial obligation to any single
one manufacturer financing source, but work with dealers anywhere in the
country.

So which one is better?

Conventional dealers provide better lease-deals on limited-time promotions.
Factory-subsidized cars that have subvented money factors and residuals are
very attractive lease deals and can be very hard to beat anywhere else.

Independent lease companies can offer you unbiased and professional advice
on vehicle selection regardless of make and model. This is because they are
not tied to a single manufacturer or financing source, unlike conventional
dealers who have to sell specific models. They can also be more flexible
regarding negotiating lease terms like residual value and mileage.
Ultimately, if you prefer a more personal and customer-oriented
relationship with your leasing agent, then you will do well with an
independent leasing company.

How to spot a good car lease

Leasing has been lauded as your cheapest ticket to keep up with the
industrys hottest vehicles and trends. The jury, however, is still out
on leasing: with the industry long on hype and short on detail, it is
difficult to distinguish between a genuinely good deal and a downright
up-selling exercise.

So how do you spot a good deal?

First, you need to find out if there are any down payments on the lease. A
down payment refers to the lump sum amount that you pay upfront, either in
cash, non-cash credit or trading allowance, to reduce your monthly payment.
You should think twice before putting money down on a lease: not only are
you getting a rough deal, as youre essentially forfeiting the general rule
of leasing: not putting any cash upfront, but the money is not recoupable
at the end of your lease. There is another big disadvantage: in the event
of your car getting damaged or stolen, you insurance and the gap cost will
not cover the loss.

Mileage Limit

Most leasing companies allow you a limit of 45,000 free miles over the
length of a 3-year lease. This may seem like a good deal at first sight,
but when you consider it only comes to 15,000 miles over a 12 month period
its not difficult to foresee why it might be difficult to stay within this
limit. Even people working from home have little trouble putting 15,000
miles on their cars.
If you exceed the mileage limit, the penalty for each excess mile can be as
high as 20 cents. This can add up quickly over the length of your lease: an
additional 4,000 miles a year over the length of a 3-years lease contract,
will end up costing you an extra $2,400 in excess mileage charges!
Be realistic about your mileage needs, especially if you have to regularly
commute over long-distances, before you sign the contract. Consider padding
the miles that you expect to use since it is less expensive to contract for
the extra before you sign than it is to pay the extra charges at end of
your lease.

Sales Tax

Sales tax is usually capitalized and added to the monthly payments.
However, some dealers choose not to include it in their calculations to
drive the advertised lease payments even lower. What they do instead is
state in the small print that the monthly payment excludes sales tax.
Make sure you carefully read the fine print for any extra, hidden costs not
included in the advertised monthly payment. Unscrupulous fees that
typically slip through the cracks include sales tax, registration and title
fees.

How to get out of a lease before your contract expires

When your lease is up, you can simply turn in the keys and lease another
car or buy a new one. But how about getting out before the lease ends?
Maybe you cant afford the sky-high payments on that silky Jaguar JX V6
model anymore or youve just had a baby and you need a larger and more
spacious vehicle?
Unfortunately getting out of a lease is not as easy as getting in! A
leasing contract is difficult and expensive to terminate early. Simply
turning in the keys and walking away from a lease can result in stiff
penalties. You credit could be ruined and you could even get sued for
breach of contract.

Its not all doom and gloom though. Actually, there is a number of
options available to you.
You can sell the car yourself and pay off the bank. This can be cost
effective if the market value of the car is close to the buy-out number.
Do not hesitate to exercise this option even at a loss if it happens to be
lower than the termination fee.
Your best option, though, is to transfer your lease for someone who would
assume it and take it off your hands. There is a whole set of potential
buyers looking for short-term leases without all the hassle and extra
costs. Check with family and friends or use the services of lease-
assumption websites, like swapalease.com, to list your car. Make sure you
check the credit worthiness of the new lessee and provide the car in good
condition.