Leasing a car is a good option for California drivers looking to reduce monthly car payments, but don’t forget to negotiate the capitalized cost and money factor.

More and more drivers in the US are ditching car loans for lease agreements; as of 2020, around 25% of vehicles in the United States are leased. With leasing being such a popular option, you may decide to look into it in your state.

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Reasons to lease a car in California

California has the highest cost of transportation in the country. Between maintenance prices and gas costs, drivers in the Golden State will spend 27 to 45% more than any other state.

With prices like these, it’s no wonder leasing is gaining popularity. Buying and financing are certainly the more traditional route, especially for those who want to own a car. But if you don’t care much about owning a car, leasing provides all the advantages of driving a reliable car but at a lower monthly cost.

Similar to leasing an apartment, leasing a car is simply a long-term rental agreement for those who don’t want to deal with the hassle of car ownership.

As with every option, leasing comes with pros and cons. Here are some of the benefits of leasing a car.

Flexibility

Without the cash to pay upfront for a new car, you’ll probably have to finance it. Auto financing typically includes a hefty down payment along with your monthly payments, keeping you in debt for years.

With leasing, however, you get to choose the terms and length of your rental agreement. You decide how long you want the car (within reason), then it’s yours as long as you pay the monthly bill. When the lease is up, you get to walk away debt-free.

Lower monthly cost

Since California is so large, the cost of living varies significantly across the state. On average, though, California’s cost of living is almost 40% higher than the US average. Paired with the sky-high transportation costs, most California drivers could use a break in their expenses.

By and large, monthly lease payments are cheaper than car loan payments. Plus, car lease agreements may include maintenance costs or other benefits. These lower rates and upkeep costs can add up to substantial savings.

No loss on depreciation

When you buy a new car, it starts losing value the moment you drive it off the lot. Depending on how long you’ll be making payments, your car may have little value left when you finally own it.

With leasing, however, you don’t have to think about depreciation at all. You’re paying to drive the car while it’s at its peak performance—and you won’t have to worry about what happens to it afterward.

Key Takeaway: When you lease, you’ll be paying less to use a car that fits you best.

MORE:

How to calculate a car lease payment

What to look for when leasing a car in California

If you’re new to leasing, you’ll need to understand a few key parts of the process before you jump right in. Here are a few of the most crucial aspects of the leasing process.

Just like with normal auto financing, leasing will require an upfront payment along with your monthly payments throughout the lease term. Instead of paying on the principal with a loan, however, you’ll be paying for the vehicle’s lost value over the course of your lease.

If you have a closed-end lease, you’ll return the car when your lease ends—end of story. Sometimes, though, dealers will offer an option to sign a lease wherein you’ll be able to purchase the car when the lease term ends.

Before you head off to the dealership, remember that many of the lease terms are negotiable, so you’ll want to pay close attention to the lease’s exact terms ahead of time. Below are a few terms to know—and red flags to watch for.

Terms to know

Capitalized cost: The “cap cost” is the amount of money your monthly payments will be based on. Whether it’s the manufacturer’s suggested retail price or not, it’s sure to increase with add-ons like service contracts, registration fees, warranties, and insurance. You can negotiate a lower cap cost to lower your monthly payments.

Money factor: This refers to the interest rate you’ll pay on your lease, which is usually anywhere between 0.0021 and 0.0046. To calculate the interest rate from this, multiply the money factor by 2,400. You’ll want this number to be as low as possible so your monthly payments stay affordable.

Mileage cap: Most dealers will place a yearly mileage limit in your lease agreement. If you exceed this limit, you’ll be hit with fees.

Red flags to watch for

No matter what you decide, it’s important not to rush into a lease agreement. Take your time and find what works best for you—and be sure to get everything in writing before you sign anything. Look out for any dealer that:

Tries to convince you to sign a lease on your first visit

Only wants to talk about monthly payments without negotiating the cap cost or money factor

Piles on lots of unnecessary fees and extra expenses to your cap cost

Adds on excessive fees and expenses to your cap cost

How much should I expect to pay?

According to

Statista

, the average monthly lease payment was $460 in the final quarter of 2020, so do your best to get a monthly payment around that amount. Ideally, your total car expenses should cost 20% or less of your monthly income.

How to find affordable insurance for a leased car

Leasing or not, you’ll need car insurance—and even in California, affordable coverage isn’t impossible. Not with Jerry, at least.

When you use the

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Leasing isn’t the only thing saving drivers hundreds of dollars—the average Jerry user saves $887 on annual car insurance!

“
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FAQs

How long is the average lease term?

Average car lease terms are 36 months, or three years. 24 months and 48 months are also popular options, but they may cost a bit more. Consider your specific needs—like how much you drive or any possible financial changes—when picking the lease term that works for you.

Is leasing a car a good idea?

Leasing can be a good way to make your car expenses more affordable, but it’s not for everyone. If owning your car is important to you, leasing is likely not the best idea.

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