Car-lease incentives: what you need to know Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial decisions by offering interactive tools and financial calculators as well as publishing honest and original content. This allows users to conduct research and evaluate information at no cost and help you make financial decisions with confidence. Bankrate has partnerships with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website are provided by companies that pay us. This compensation could affect how and when products appear on this website, for example for instance, the order in which they appear within the listing categories, except where prohibited by law for our mortgage, home equity and other home loan products. This compensation, however, does affect the information we publish, or the reviews that you read on this site. We do not include the universe of companies or financial offerings that could be open to you. Westend61/Getty Images
4 min read Published on October 27, 2022.
Written by Anna Baluch Written by Contributing writer Anna Baluch is a former Bankrate contributor. She is a personal finance freelance writer from Cleveland who enjoys writing about mortgages, debt and student loans and personal loans along with auto loans. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain confidence to manage their finances by providing precise, well-studied information that breaks down otherwise complicated subjects into digestible pieces. The Bankrate promise
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This compensation could impact how, where and in what order items appear within listing categories and categories, unless it is prohibited by law. This is the case for our mortgage home equity, mortgage and other products for home loans. Other elements, such as our own website rules and whether the product is offered in your region or within your own personal credit score may also influence the way and place products are listed on this website. Although we try to offer an array of offers, Bankrate does not include information about every financial or credit product or service. If you're thinking of leasing a car, there are a few important factors that you need to be aware of the incentives that may be offered. Incentives for auto leases are not exactly identical to incentives that are offered when you purchase a new vehicle. It is essential to know the specifics of these incentives to make sure you get the best deal when leasing a vehicle. What are car-lease incentives? Car-lease incentive programs are provided by automakers to convince consumers to lease a vehicle. Car-lease incentives are frequently advertised by automakers and can promote them on their websites, and also through commercials, radio and direct-mail ads. The purpose of incentives for car leases can be to assist in making leasing a particular car cheaper and appealing. Three kinds of car lease incentives before heading to the dealership, there are three types of car lease incentives to be aware of. 1. Cash-back rebates for leasing cars are similar to the ones you receive when buying a car. This rebate is for an undetermined amount, is set by the car manufacturer and is applied to the overall price tag associated with leasing the vehicle and thus reduces your cost. The total value of a rebate will differ based on the lease terms you choose. Any restrictions on the rebate are clearly stated on the site of the automaker usually in the fine print of the offers section. 2. The subsidized interest rate involves the auto manufacturer offering a lower rate for customers with good credit who make use of the automaker's lending arm, for instance Ford Credit or Toyota Financial Services. It's sometimes referred to as a "lease deal" to a specific . You will need to compare this interest rate with loans you can obtain on your own through another lender to determine which one is the better deal. Review all the details of the lease agreement for a precise comparison. 3. Subsidized residual value Residual values -- and subsidized values -- are important factors associated with the cost you have to pay for leasing a car. A car's residual value that is determined by the leasing company, is a rough estimation of the value of the car is worth after the lease expires. This number is crucial because the amount to be paid for the lease will depend on the price of the vehicle at the outset in the lease as well as its value when it is end of a lease. If a car's price was $25,000 when it came out at the time of the beginning of a lease for example, and its residual value is $10,000, then your cost to lease that car is $15,000 -- an expense that's divided into monthly lease installments. As an incentive the leasing company or automaker may subsidize leases in order to make your payments less. Automakers will often offer either an interest rate that is subsidized or a discounted residual value on a vehicle, but not both. The details of these aren't clear, however, so you may have to ask. The perks of car-lease incentives If you are able to make a commitment to a car lease incentive, you could benefit from it in several ways. Lower payments You may enjoy lower monthly payments, which could make your cash flow more flexible and help you pay to own the vehicle you'd like. The lower monthly payments can be arranged by taking advantage of the "lease deal" that the automaker will offer which can keep interest rates at a low, or by applying the cash rebate as a down payment. Cash in hand You may receive an automaker's check or put the cash toward the total amount that the lease will cost. Extra money in the bank is always a plus in the case of vehicle financing but beware of any restrictions that might be in place. For instance, you might require the finance company for your car manufacturer in order to avail this benefit. A better car for less You may go home in a vehicle with every bell and whistle for an affordable price. In the event that you've been wanting drive a particular car, but aren't able to buy it, an incentive could let you test take it on for couple of years. The key to driving away with a great car with less money spent comes from the residual value that is subsidized. It keeps your monthly payments at a minimum, and keeps the value of the car higher. What should you be aware of Even though car lease incentives provide quite a few perks however, there are two main disadvantages that could arise when you sign with a huge cash reward. Additional mileage charges It is essential to study the specifics in relation to the cash-back amount. In many instances, you may be charged high fees for exceeding mileage limits. Each dealership is unique and this could be anywhere from 15 to 25 cents per mile. Take into consideration the amount of miles you drive on a day-to-day basis -and if you're planning any planned trips when deciding to sign off on a cash-back. Balloon payment The automaker may also need a balloon payment which is a bigger one-time payment that is due at the end term of your lease. If your budget isn't able to allow you to pay for this it could put you in a bind. Keep in mind: If you come across incentives for leasing cars that sound too attractive to be authentic, . Be aware of your state. While car lease incentives come with notable advantages but they also have a major disadvantage: Some states tax incentives for cars and rebates. If you live in a state where this is the case it, you might have to pay tax on the total cost of the car prior to the incentive is applied. There's no need to fret about this if you live in one of the states that do not tax incentives : Alaska
Louisiana
Nebraska
Rhode Island
Arizona
Massachusetts
New Hampshire
Texas
Delaware
Minnesota
Oklahoma
Utah
Iowa
Missouri
Oregon
Vermont
Kentucky
Montana
Pennsylvania
Wyoming
The most important thing to remember is that before you jump at any car-lease incentive read the details. Make sure you understand how lease cash rebates or interest rates that are subsidized and residual value affect your costs out of pocket. Take note of the disadvantages of incentives, like penalties for exceeding mileage limits and steep one-time balloon payments. The most important thing is to think about all lease terms and whether the lease makes sense for your budget before signing the dotted line. Find out more
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Written by Contributing writer Anna Baluch is a former Bankrate contributing writer. She is a freelance personal finance writer from Cleveland who loves writing about mortgages, debts and student loans, auto loans and auto financing. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain confidence to manage their finances by providing concise, well-researched and well-documented information that breaks down otherwise complex topics into manageable bites.
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