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Luxury Vehicle Leasing: How It Works & What You Need To Know

  • Luxury vehicle leasing isn’t difficult, but there are some things to consider.
  • Leasing can be a great option if you are looking to drive a higher-end car.
  • Cole McKeon, the editor of Below Invoice, shares some helpful tips and advice.

Leasing a luxury vehicle offers you the pleasure of driving a high-end car without the commitments or some of the costs that come with purchasing. In this guide, we explore the basics of luxury vehicle leasing and what you need to know beforehand.

What Is Leasing?

Leasing is essentially borrowing a vehicle for a length of time, typically three years or less, in exchange for a monthly fee. Some agreements include the option to purchase the vehicle at the end of that period. 

Depending on your circumstances, a lease may be the best option, whether that is because you are working far from home and flying frequently, or because you want the joy of driving a new car for less. This holds true, especially for luxury vehicles. After all, why would you buy a traditional sedan for almost $400 per month, when you can lease a luxurious BMW 320i for a little more than $300 per month?

By leasing, you can still fulfill the commonly-held dream of driving a new luxury car (PDF), while paying less than you would for a lower-end model. Below are questions and answers that can help you make sense of luxury vehicle leasing.

Is Leasing The Best Option For Me?

Before taking the plunge and signing the papers, ask yourself these questions. Considering these beforehand can help you make the best decision.

  • Are you planning to keep the vehicle for a maximum of three years?
  • Do you keep your vehicles in excellent condition inside and out?
  • Is having a bumper-to-bumper warranty important to you?
  • Is your annual mileage less than 12,000?
  • Does prestige matter to you?

What Are The Advantages?

As mentioned above, one of the most significant advantages of leasing comes with a luxury vehicle. The monthly payments are usually lower than when financing, which can make luxury vehicles more attainable for consumers.

Lease payments are based on the vehicle’s depreciation during the period for which you borrow it, rather than on the value of the car. This can be particularly helpful, considering the financial implications of the COVID-19 pandemic for millions of Americans.

Another advantage is that leased luxury vehicles are still under the factory warranty. Unless something drastic happens, the car will only need the standard maintenance required by the terms of the warranty.

Luxury vehicle leasing.
Leasing can be a more affordable way to obtain a luxury vehicle.

What Are The Disadvantages?

One of the disadvantages of luxury vehicle leasing is that, after three years of monthly payments, as well as the effort of keeping the car in good condition, you must return it.

Another disadvantage, especially for people who lease several luxury vehicles during their lives rather than purchasing one and making several trade-ins, is the amount of money spent. You could end up spending more money over time than someone who finances a vehicle to acquire it.

How Much Does Leasing a Luxury Car Cost?

The cost of leasing a luxury vehicle depends mainly on you. The bigger the sum you put down when you lease the car, the lower the monthly payments. If you accept a zero-down offer, you can expect much higher monthly payments. You also need to remember that, before approving your lease, the dealership will check your credit score and payment history.

Is a Leased Vehicle Deposit Refundable?

Whether the deposit you pay when leasing a luxury vehicle is refundable depends on the terms and conditions of the lease. Generally speaking, deposits are refundable once the lease has been concluded. Some agreements state that deposits are not refundable. Make sure you read the fine print before signing any papers.

Luxury vehicle leasing.
Make sure to read the fine print before signing any papers and taking the keys.

Is Maintenance Included In The Lease?

Standard lease agreements for luxury vehicles include regular maintenance and servicing. This usually includes, but may not be limited to, tune-ups and the changing of filters, oil, and other fluids. You should not need to pay anything extra for standard maintenance of the vehicle during the lease period. However, this can vary, so again, be sure to read the fine print.

What Documents Are Required?

If you decide to lease a luxury vehicle, you generally will need to take various documents and certified copies thereof to the dealership. However, due to COVID-19 lockdown regulations, some dealerships may send someone to collect your documents and to deliver the car. In most cases, the following documents are required:

  • Insurance card.
  • Proof of residence.
  • Valid driver’s license.
  • Your two most recent pay stubs.
  • Trade documents such as registration forms.
  • List of references (this cannot include members of your household).

What Terms Should I Know About?

There are several terms in most luxury car lease agreements that you need to understand. They include:

Manufacturer’s Suggested Retail Price: The full cost of the new car is the manufacturer’s suggested retail price, or commonly referred to as the MSRP. You may be able to negotiate a lower price (and you should try).

Capitalized Cost: Also known as the lease price, it is the base price negotiated down from the MSRP.

Depreciation: The vehicle’s decrease in value during the period for which you lease it. This is a crucial factor in calculating monthly payments.

Residual Value: The luxury vehicle’s wholesale value once the lease is concluded.

Lease Rate: The interest rate is also known as the lease rate or the money factor.

Mileage Allowance: The maximum number of miles for which you can drive the car in a year. In most leases, this ranges between 10,000 and 15,000 miles. You will be subject to a fee if you exceed the limit.

Penalties and Charges: In most leases, penalties, and charges are imposed for late payments of the monthly lease fee, terminating the contract early, and unreasonable wear-and-tear.

Luxury vehicle leasing.

Will COVID-19 Affect My Lease?

As many car manufacturers have been closed for extended periods, they are behind on orders and have suffered dramatically from COVID-19 lockdowns. New luxury cars may be in short supply for a while as they try to catch up and meet demand. This means if you were near the end of your lease, you might not be able to get your new car as expected.

Leasing companies may offer you the option of extending your current lease, which benefits them financially. However, it also allows you to renegotiate your monthly contractual payment, as the terms of the contract will change. In the future, we may well see more and more people opt to lease cars rather than buy, as they feature lower out-of-pocket costs better suited to a struggling economy. 

How Do I Return a Vehicle?

You should do your best to return your leased luxury vehicle in as good a condition as possible. In normal circumstances, you would return it to the leasing agency or dealership from which you leased it. However, most leases let you return the car to a different branch of the agency or another authorized dealership for the vehicle brand.

Returning a leased luxury vehicle during lockdown due to the COVID-19 pandemic may be difficult if companies are closed or operating remotely. Most likely, you’d need to discuss the return of a vehicle and consider signing an extended lease until operations resume as normal. It’s best to contact the dealership or agency for further information, as they may assess returns on a case-by-case basis.

Luxury Vehicle Leasing Is a Fraction of The Cost

At the end of the day, leasing lets you drive a luxury car at a much lower price than if you were to buy it. It also reduces your potential maintenance costs and allows you to trade-in for a brand new vehicle every few years. 

While COVID-19 may briefly impact the availability of new cars, it looks like the leasing industry may well benefit as people look for more cost-effective ways of driving what they want, rather than what they can afford to finance or buy.

Cole McKeon is the editor at Below Invoice, a luxury auto broker located just outside of Los Angeles, CA., were they streamline the luxury vehicle acquisition process by providing a comprehensive suite of services.