Car-lease incentives: what you need to know
If you’re considering leasing a car, there are a few important factors you should know about car-lease incentives. Incentives for auto leases are a bit different from the incentives, also known as rebates, offered when you buy a new car. Put yourself in the best position to save money on your next vehicle purchase by understanding what an incentive is.
What are car-lease incentives?
Car-lease incentives are just like they sound, incentives to encourage you to lease a car. Automakers often offer car-lease incentives and promote them on their websites, as well as through commercials, radio and direct-mail ads. The goal of car-lease incentives is to make leasing a specific type of car more affordable and enticing.
3 types of car-lease incentives
There are several types of car-lease incentives you may come across, but here are the three most common you will run into.
1. Cash rebates
The cash rebate that is offered when you buy a new car can sometimes be applied to a lease. This rebate is set by the manufacturer and is for a flat amount. Any restrictions on it are spelled out on the automaker’s website, usually in the fine print under the offers section.
2. Subsidized interest rates
Also known as a “lease deal” for a specific monthly payment, a subsidized interest rate is where the auto manufacturer offers a lower rate for customers with good credit if they use the automaker’s lending arm, such as Ford Credit or Toyota Financial Services.
You’ll need to compare this interest rate with financing you could obtain on your own through another lender to see which is better. Look through all the specifics of the lease terms to ensure an accurate comparison.
3. Subsidized residual values
A subsidized residual value is the percentage of how much the manufacturer wants to set the car’s depreciation at. The higher the residual value, the lower your monthly payments. An automaker will usually offer a subsidized interest rate or a subsidized residual value on a car, but not both. Often, the details aren’t obvious, so you may have to ask.
The perks of car-lease incentives
If you can lock in a car-lease incentive, you may benefit in one or more ways.
- Lower payments: You may enjoy lower monthly payments, which can free up your cash flow and make it more affordable to drive the car you want. These lower payments are possible through the “lease deal” that the automaker will offer which can keep your interest rates low, or by applying the cash rebate as a down payment.
- Cash in hand: You may receive a check from the automaker or apply the money toward the total cost of the lease. Extra money in the bank is always a plus when it comes to vehicle financing but beware of any restrictions that may apply.
- A better car for less: You may go home in a car with all the bells and whistles at a price you can afford. If you’ve always wanted to drive a certain vehicle but don’t have the money to buy it, an incentive may help you drive it for a few years. The key to driving away with a great car with less money spent comes from the subsidized residual value offered. It keeps your monthly payments low, while keeping the value of the car high.
What to watch out for
Although car-lease incentives come with quite a few perks there still are two main potential drawbacks to signing off on a hefty cash rebate.
- Extra excess mileage fees: It is important to read the fine print when it comes to a high cash rebate. In many cases, you may be charged costly fees for exceeding your mileage. Every dealership is different, but this can cost you as much as 30 cents a mile. Consider the number of miles you clock on a day-to-day basis — and whether you have any upcoming trips — when deciding to sign off on a cash rebate.
- Balloon payment: The automaker may also require a balloon payment, which is a larger one-time payment at the end of the lease. If your budget won’t allow you to make this payment, you may put yourself in a bad position.
Just keep in mind: If you come across a car-lease incentive that’s too good to be true, it probably is.
Know your state
While car-lease incentives come with notable advantages, they do have one major drawback: Some states tax car incentives and rebates. If you live in a state that does, you may have to pay taxes on the full price of the vehicle before the incentive is applied.
You don’t have to worry about this if you live in one of these states that don’t tax incentives:
The bottom line
Car-lease incentives can help you decide which vehicle to lease. If Toyota and Honda SUVs offer the same features you’re looking for at a similar price, but Toyota has a $1,000 cash rebate it may make more sense to go with Toyota.
Before you jump at any car-lease incentive, however, read the fine print. And if anything is unclear, ask the automaker or dealer. The last thing you want to do is accept an incentive and be stuck in a lease that you can’t afford or simply don’t like.