Learn more about subvented leases and how they work.
Definition and Example of a Subvented Lease
A subvented lease is a lease with incentives such as a lower interest rate. Typically, you’ll need excellent credit to obtain a subvented lease. In some cases, the dealer’s subvention program may increase the car’s residual value so you can get lower monthly payments. For example, let’s say you’re planning to lease a $22,000 car with a residual value of $10,000 after 36 months. Since the car is expected to depreciate by $12,000, that means your monthly payment will be $333. If the dealer increases the residual value to $13,000, this lowers your payments to $250 per month.
How Does a Subvented Lease Work?
In a typical lease, you’ll make monthly payments based on the value of the car. This value is determined by subtracting the expected resale value at the end of the lease from the current price of the vehicle. Subvented leases may be offered by dealerships on inventory they need to move quickly, or for low-demand models. When you take out a subvented lease, you could receive a discount on the APR or price of the car, or get lower monthly payments.
Types of Car Leases
If you’re interested in leasing a car, a subvented lease is not your only option. Here are four leasing options to consider.
Closed-End Leases
A closed-end lease is a common type of consumer lease. If you take out a closed-end lease, you agree to the contract for a fixed period of time. Once the lease is up, you’ll return the vehicle to the dealership. During the lease contract, you’re responsible for staying within the predetermined mileage limits. You also have to keep up with scheduled maintenance. If you don’t stick to the terms of the lease contract, you may end up paying extra charges.
Open-End Leases
An open-end lease is less common than a closed-end lease. If you travel frequently, this lease may be an attractive option for you. That’s because open-end leases don’t come with mileage restrictions. However, your monthly costs may be higher with an open-end lease. At the end of the lease, if the vehicle is below market value, you’ll have to pay for depreciation costs.
Single-Payment Leases
If you take out a single-payment lease, you pay a large upfront sum rather than making periodic payments. This payment method should result in an upfront payment that’s less than the amount you’d pay if you made monthly payments. If you have the cash, there are advantages to taking out a single-payment lease. Since you’re paying upfront, you’re reducing the lender’s risk. As a result, you’ll get a lower interest rate and better approval odds than if you asked for a closed-end lease.
“Option to Buy” Leases
Some leases give you the option to purchase the vehicle at the end of your contract. This is known as an “option to buy” lease. However, you need to negotiate this option at the beginning of your lease contract.
Buying vs. Leasing
If you are looking to get a new car, you may wonder whether you should lease or buy the car. There are pros and cons to both options. Here’s a look at some of the main differences: However, your customization options will be more limited, and you’ll have to pay for excessive wear and tear. And at the end of the day, you don’t own that car. On the other hand, if you buy a car, you own that asset. You have unlimited customization options and won’t have to pay for wear and tear. However, if you finance the purchase, your monthly payments will likely be higher.
