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Leasing a car is a good option for New Jersey drivers looking to reduce monthly car payments, but you’ll need to negotiate the capitalized cost and money factor.
As of 2020, about 1 in 4 vehicles in the United States are leased. As this approach to driving becomes more popular, it’s important to consider leasing as an option in your state.
If you’re considering leasing a car in New Jersey, car insurance comparison and broker app Jerry has answers to all your questions.
Reasons to lease a car in New Jersey
New Jersey residents have the third-longest commute times in the United States. If you’re one of the 15.8% of New Jerseyans who spend an hour or more commuting each day, you know how important your car is.
Although buying a car with a loan is the best route to ownership, leasing is becoming an increasingly popular way to drive a reliable car at a lower monthly cost. Essentially the same as renting a car long-term, leasing is a great option for drivers who don’t want to own a car.
If you’re on the fence about leasing a car, consider the following advantages of a lease.
Traditional auto financing, where you put down a big down payment and pay off a loan for years before you can own your car, locks you into debt for years. A lease, on the other hand, allows you to choose the terms and duration of your agreement. You’ll have the car as long as you need it, and once your lease is up you can walk away debt-free.
Lower monthly cost
According to Bestplaces.net, New Jersey’s cost of living is higher than the U.S. average. Car-related expenses, including loan payments, make up a big portion of the monthly cost of living.
In general, your monthly car lease payment will be significantly lower than a loan payment, and depending on the terms of your lease agreement, it could include routine maintenance and other benefits. Because of those lower rates, leasing can be a great way to reduce strain on your finances.
No loss on depreciation
You’ve probably heard it before—your car starts losing value the minute you drive it off the lot. That lost value can post a serious problem if you’re paying off a loan on a vehicle that will have almost no value once you finally own it. With a lease, you don’t need to worry about depreciation, since you’re paying to use the vehicle during its best years and won’t be responsible for it afterward.
Key Takeaway: Leasing allows you to pay less each month to drive a car that works for you.
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What to look for when leasing a car in New Jersey
If you’re new to leasing, it’s important to go into the process with a thorough understanding of how it works. Here’s what you’ll need to pay attention to in the leasing process.
Just like traditional financing, leasing a car usually involves an upfront payment followed by monthly payments over the course of the lease term. However, instead of paying off a loan, you’re paying for the value that the car loses as you drive it.
In general, once your lease term ends, you’ll return the car and walk away with no further responsibilities; this is called a closed-end lease. However, dealers will often give you the option to sign a lease that allows you to purchase the car at the end of the lease term.
Many of the terms of your lease agreements are negotiable, so it’s worth knowing all the terms before you head to the dealership. Keep an eye out for the following terms and possible red flags.
Terms to know
- Capitalized cost: The “cap cost” is the amount of money your monthly payments are based on. It may be the same as the manufacturer’s suggested retail price, but it will be increased by add-ons like service contracts, registration fees, warranties, and insurance. You can negotiate a lower cap cost to get lower monthly payments.
- Money factor: This refers to the interest rate you’ll pay on your lease, usually ranging between 0.0021 and 0.0046. Multiply the money factor by 2,400 to calculate the interest rate; you want it to be as low as possible to keep your monthly payments manageable.
- Mileage cap: Most dealers put a limit in the lease agreement on how many miles you can drive each year. Take this number seriously, since you’ll have to pay extra fees if you exceed it.
Red flags to watch for
Take your time finding a lease agreement that works for you, and make sure to get everything in writing before you sign. Be cautious of any dealer that:
- Asks you to sign a lease on your first visit
- Only wants to discuss monthly payments without negotiating cap cost or money factor
- Includes a lot of extra fees and expenses in your cap cost
How much should I expect to pay?
According to Statista, the average monthly lease payment in the last quarter of 2020 was $460. Aim for a monthly payment around that amount and try to keep your total car expenses at or below 20% of your monthly income.
How to find affordable insurance for a leased car
Whether you finance or lease your car, you’ll need to buy car insurance. Just like with a lease agreement, don’t take the first deal in front of you—take your time finding the right coverage at a rate that works for your budget.
With Jerry, “taking all the time you need” looks like downloading an app and getting competitive quotes from 50+ top companies within 45 seconds. As a licensed broker, Jerry connects you with the best rates available, and they’ll handle all the paperwork to finalize your deal once you’ve chosen the quote you want.
Just like leasing, Jerry can save drivers hundreds of dollars a year! Jerry users save an average of $879 on annual car insurance costs.
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How long is the average lease term?
The average car lease term is 36 months, or 3 years. Consider your needs, including how often you intend to drive the car and whether you expect your employment or living situation to change, when determining the right lease term for you.
Is leasing a car a good idea?
Leasing a car can be a good way to make your car expenses more affordable, but it’s not the right option for everyone. If owning your car is important to you, leasing is probably not the best idea.