Mistakes to avoid when leasing a car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by providing you with interactive tools and financial calculators as well as publishing high-quality and impartial content. This allows you to conduct research and compare information at no cost to help you make informed financial decisions. Bankrate has partnerships with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this website are provided by companies that pay us. This compensation can affect the way and where products are displayed on this website, for example, for example, the order in which they may appear in the listing categories in the event that they are not permitted by law for our mortgage, home equity and other home lending products. But this compensation does not influence the information we provide, or the reviews you see on this site. We do not include the entire universe of businesses or financial offers that may be accessible to you. Thomas Barwick/Getty Images
8 min read published 11 January 2023
Authored by Dan Miller Written by Points and Miles Expert Contributor Dan Miller is a former writer who contributed to Bankrate. Dan wrote about loans, home equity , and managing debts in his work. The article was edited by Chelsea Wing Edited by Student loans editor Chelsea is with Bankrate since early 2020. She’s committed to helping students to navigate the steep costs of college , and simplifying the complex world of student loans. The Bankrate guarantee
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Therefore, this compensation may affect the way, location and in what order items are displayed within the categories of listing, except where prohibited by law. We also offer mortgage home equity, mortgage and other home loan products. Other factors, such as our own proprietary website rules and whether the product is available within the area you reside in or is within your self-selected credit score range can also impact the way and place products are listed on this website. We strive to offer an array of offers, Bankrate does not include specific information on each credit or financial product or service. gives you a vehicle to drive for a predetermined number of months and miles. It’s like renting an apartment rather than buying a house. There’s no long-term commitment to make, however, you need to make payments for. Leasing a car is usually lower than purchasing it on an . Drivers save an average of $138 per monthly payment, according to for 4th quarter 2022. There are some downsides to be aware of. 7 mistakes to avoid when leasing a car Leasing can lower your payments however, it can also be costly if you do not pay attention to the small print. Avoid these five common blunders if you decide to lease your next car. 1. In the beginning, you’re paying too much. Car dealers advertise low monthly lease rates on new vehicles, but you might need to pay several thousand dollars upfront in order to secure that affordable payment. The money is used to pay for a portion of the lease in advance. If the car is destroyed or stolen within the initial few months, you can reimburse the leasing company for the cost of the car, but the leasing company will likely not be able to refund the down payment. You’d be out of a carand the upfront amount you gave for the lease company would essentially disappear. It’s recommended you spend no more than $2,000 in the beginning when leasing a car. In some cases it’s possible to put nothing down and then roll the entire cost into the monthly installment. In the event that something goes wrong with the vehicle before the end of the term, at least the leasing company doesn’t have a big chunk of your cash. 2. Not negotiating the lease agreement Several components of lease agreements are usually included, such as the: Buyout price: The amount you’ll be paying the dealer if you opt to buy the vehicle after the lease is over. Disposition cost: This fee will cover the cost of the dealer for preparing your vehicle for sale after it’s returned. Gross capitalized cost: Also referred to as the price of sale for the vehicle which affects the monthly payment and the buyout price. Allowance for miles: Leases have the amount of miles you’re permitted to drive each year, and failing to adhere to this limit means that you’ll be charged additional charges unless you purchase the vehicle when the lease ends. Money factor: The price you pay to lease the vehicle — essentially, the interest rate. Failing to negotiate these figures could result in you leaving hundreds or thousands of dollars in savings on the table. 3. Not buying gap insurance If you are driving a car that you lease, you should take out . The «gap» is the difference between the balance you have to pay on your lease and the worth of the vehicle. For instance, suppose your lease states that at the end of your lease, you can buy the car for $13,000. If you crash and total the car prior to when the lease is up the insurance company will decide the car’s current market value and pay that amount to the dealer that owns the vehicle. If the insurance company claims that the market value is only $9,000. In this case, you’ll probably be required to pay $4,000 of pocket to cover the difference between the lease’s residual value and the actual market value – unless you already have gap coverage. The gap coverage will cover the difference. Most leases come with gap insurance. The dealer may offer to sell you gap insurance, but you may find a cheaper policy option with a traditional insurance company. Whatever the case, the insurance coverage is worth the modest amount of money. 4. Underestimating how many miles you’ll put on the car. To avoid additional charges, know your driving habits prior to renting the vehicle. Think about your commute every day and how often you take long trips. You can request a higher mileage limit in case you are certain that you’ll be driving more miles than your contract allows. However, that will probably raise your monthly payments because additional miles will lead to a higher depreciation. It is common for lease contracts to have annual mileage limit of 10,000, 12,000 and 15,000 miles. If you go over those limits, you may be charged 30 cents per mile at the end period. If, for instance, you go over the mileage limit by 5 miles you might wind paying an additional $1500 — or 30 cents per mile -at the time you turn the vehicle in at the end term. 5. Insufficient maintenance on the vehicle If the car you own has damage that is beyond normal wear and wear, you could be in the position of paying additional charges when you have to take it back at the dealership. If the car has a scratch but the mark is not larger than the length on the outside of a driver’s license or business cards, most companies may consider it normal usage and will likely not charge a penalty. If the leasing company believes the damage to be excessive, they can charge additional fees. The definition of normal use will differ from dealer dealership. The lessor will examine the car before you turn it in , and will look for scrapes and dents on the body and wheels, damage to the windshield and windows as well as excessive wear on the tires and tears or stains in the interior upholstery. Don’t assume that your inspector will be gentle. 6. A car you are leasing for too long? Make sure that the lease term coincides with or is less than the car’s warranty period. Warranties vary from manufacturer to company, but generally last up to 3,600 miles for three years whichever is first. If you intend to keep the vehicle for more than the warranty duration then you might need to think about an extended warranty. In the event that you don’t, you may be liable for repair and maintenance costs on a vehicle you don’t own while still making monthly lease payments. It’s best to purchase the vehicle if you plan to lease it for a long time frame, suggests Barbara Terry, a Texas-based automotive expert and columnist. «If the owner owns the vehicle then he’d need to pay for the vehicle and maintain it however, he can keep driving it over many years without worrying about a mandatory monthly lease cost,» Terry says. Use an to figure out the best option for you. Whether leasing or purchasing a car can help you save cash over the long term. 7. Do not think about lease-specific insurance requirements If you’ve had the opportunity to finance a car before and you’re aware that most lenders require you to be covered for collision and comprehensive. If this is your first time , however, you might not realize that you could also be required to increase your liability limits. The liability coverage section of your insurance policy covers for injuries and medical costs if you’re at fault in an accident. In addition to collision and comprehensive leasing, the majority of leasing companies will require you to carry minimum liability limits of $100,000 per person, and $300,000 per accident, and $50,000 for . It is possible to see this referred to as 100/300/50 in your policy document. Depending on your current liability coverage the limits could increase your — which may already be higher than you’re used too after the addition of your new vehicle. To avoid any surprises You may wish to get an insurance quote for the car you’re interested in before signing on the dotted line. How to lease a car A car lease is a method to «borrow» the car instead of buying a new or used car. It usually comes with the option of a four-year or three-year agreement and an in-depth , so there are numerous aspects to take into consideration before signing off on the long-term contract. Choosing to lease instead of buying a vehicle could be a great option to own a car with the latest technologies and features at a lower amount of money each month. If you’re ready to lease a car, make sure you follow these steps: Do your research . You can lease just about any kind of car released in recent model years. You’ll need to narrow down the kind and the brand you’re most interested in before factoring in how the price will fit into your budget. To , pay close attention to your habits of driving and how the car will fit into your lifestyle. Bankrate tip
When planning your budget, you should pay a small sum before you drive off the lot in order to pay tax and fees. More than that, if you want to lock in lower monthly installments throughout the lease, you can consider putting additional money down.
Visit dealers Next, visit several dealers and do the opportunity to test drive. That will help you narrow down what exactly you’re looking for. You may want to contact us ahead of time and find out what’s available and if test drives are currently allowed. Bankrate tip
If you go to dealer locations keep in mind that you might be met with higher prices. You haven’t been able to remain in the leasing market unaffected and even though it’s still considered to be cheaper than buying make sure you are prepared for competition.
Negotiate the terms of your lease Pretty much everything is available during the leasing process. Negotiation is the only chance to secure the benefits you’d like to see in writing. For the top negotiation expert, look up current prices on websites like Kelley Blue Book and remember to negotiate more than just price. Tips for negotiating bank rates
A good lease agreement is one that leaves you paying as little over the life of the loan as possible — an initial down payment is included. If negotiation intimidates you take a trusted person to guide you through the tough conversation. Be aware that this could make negotiating the best lease terms more difficult.
Compare offers Make use of online resources and compare the offers that you can get to find the best price. Check out a few dealerships before you sign off on your car. Be mindful of the monthly costs of the mileage cap, buyout price, money factor and capitalized vehicle cost. Also, take a look at the charges the lender is charging, including the purchase fee, disposition fee, and early termination fees, to gauge if it’s comparable to other similar offers. Also, don’t forget to inquire about the payment due at signing. Tips for banks
When comparing lease options be sure to read the fine print as well as the vehicle. When you test drive, pay attention to how the vehicle drives and see if it is a good fit to your needs.
Maintain the car throughout the lease. Remember that you are required to surrender the vehicle at the end of the lease term. If the car is not in good condition, you may have to pay additional charges. Before leasing a car be sure to inquire about the guidelines on the lease’s end-of-lease conditions. These guidelines outline the kinds of damage you would have to pay for before you return the vehicle. Bankrate tip
If the vehicle is seriously damaged, drivers will be charged the full market price for repairs. In the event of a collision, you’ll be offered several options. You can either turn in your vehicle to the dealer, purchase the car , or lease a new car.
Car leasing or. purchasing a car, consider your priorities when deciding whether to . Consider the amount of miles you travel annually; if you drive a lot it could be costly to lease. Think about the pros and cons of each method. Benefits of leasing
Cons of leasing
Because you are not paying the entire value of the car, you’ll typically have a lower monthly payment.
When the term ends on leasing, your car will no longer be yours anymore. You’ll need to find an alternative vehicle or take the vehicle you leased.
If owning a more modern or high-end automobile is essential to you, your monthly lease payments will be more affordable than putting down a large payment to buy it.
You also may have to pay a vehicle turn-in fee at the conclusion of the lease if you don’t lease another car through the dealership.
With a car lease, you are usually getting a brand new vehicle. It can also help you save on ongoing maintenance costs.
Most leases come with a mileage allowance — in the event that you exceed the allotted amount, you’ll be charged huge per-mile fees.
Next steps If leasing is right for you, make sure to do your homework, shop around and make sure you find a lease that matches your driving habits and budget. Pay attention to your monthly fees and specifics and terms. To calculate your monthly payment amount, the dealer will analyze the value of your new car versus it’s residual value. Similar to any other transaction that involves financing, the better your credit score, the lower your interest rate.
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Written by Points and Miles Expert Contributor Dan Miller is a former contributing writer for Bankrate. Dan covered loans home equity, loans and debt management in his writing. The article was edited by Chelsea Wing Edited by Student loans editor Chelsea has been with Bankrate since the beginning of 2020. She is invested in helping students to navigate the daunting costs of college and simplifying the complex world of student loans.
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