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Questions to ask before leasing a car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content. This allows users to conduct research and compare information for free 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 Earn Money The deals that are displayed on this website come from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the sequence in which they appear within the listing categories, except where prohibited by law. This applies to our mortgage, home equity, and other home lending products. But this compensation does have no impact on the content we publish or the reviews that appear on this website. We do not include the entire universe of businesses or financial deals that may be accessible to you.
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6 min read published September 30 2022
Written by Allison Martin Written by
Allison Martin’s work started over 10 years ago as a digital content strategist. She’s been featured in a variety of top financial publications including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.
Editor: Helen Wilbers Edited by
Helen Wilbers has been editing for Bankrate since the end of 2022. He is a fan of the clarity of his reporting, which helps readers easily land deals and make the most appropriate choices regarding their finances. He specializes in auto and small business loans.
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Leasing a car lets you take a car on lease for a few years without the obligation to purchase it. It can be a great option to purchase a new set of wheels without fully committing financially. It’s particularly beneficial for drivers who travel under 15,000 miles per year and won’t risk mileage overages. However, leasing can be a bit complicated. To find the most affordable deal, you should be prepared with a few questions. 10 questions you should ask before leasing a car If you’re contemplating leasing , don’t jump at the first offer you see. Set yourself up for success by first asking these questions. 1. What is the total amount to be paid at the time I sign the lease? Before signing a lease, you will receive a thorough written list of all you have to pay. In the beginning, you may have to pay security deposits and title fees, a capitalized cost reduction and monthly installments due at the time of signing as well as registration costs. Knowing the total amount due at the time of signing the lease can help to avoid overspending. Plus, knowing the price breakdown can assist you to negotiate better. What you should take away from this is
The payment you sign off on usually is higher than the sticker price you were enticed by to it, so make sure you get a list of fees first.
2. What is the length of the lease? A leasing firm will inform you the number of payments that the lease covers and how much each one will be , and the time the payment is due. The most common lease terms include 24, 36, 48 and 60 months however you can also find unusual terms, like 39 months. Certain odd-month leases could be created to make it difficult for you to understand. If you are looking at lease options, keep in mind that a lease with a longer term offers lower monthly payments, but you’ll pay more . The most important thing to remember is
Weigh your options before agreeing to a lease term and be aware of how the lease term will affect your monthly payment.
3. What type of lease am I signing and what happens after it expires? There are two types: close-end as well as open-end. In a closed-end lease, the leasing company sets a total price based on their estimate of the vehicle’s depreciated value. Even if the vehicle appreciates higher than you anticipated in a closed-end lease, the only costs you’re responsible for are excess mileage as well as wear-and-tear costs. The most popular kind of lease. In an open-end , or financial lease you will have to cover any difference in the car’s residual value and its actual price at the expiration period. If the vehicle depreciates faster than anticipated, you could be charged a significant amount at the close period. In both cases, be sure to read the fine print to ensure you are not surprised by additional lease fees. What you should take away from this is
Knowing what type of lease you’re entering into allows you better plan the amount of payments.
4. Do I have the option of buying the vehicle at the expiration of the lease? If you’d like to buy the car, you could have an option to purchase the car in the amount of the residual value, or purchase price option included in the lease contract. Before you do, make sure to evaluate the residual value against the retail value of the vehicle to find out if you’re getting a good bargain. Also, evaluate the car’s condition to assess if it’s in good shape and hasn’t depreciated significantly. You may find that a buyout isn’t worthwhile unless you’re faced with steep wear and tear costs or fines for exceeding the mileage limit. Key takeaway
The lessor may allow you to buy out your lease once the lease expiration date comes around, but you should run the numbers to verify that it is financially feasible.
5. How much is residual worth of the vehicle? The residual value of a vehicle is the amount it’s believed to be at at time of lease. The leasing companies decide on what the value of residual is, however you can get an estimate of . This number can be helpful because it is a key aspect in determining your monthly payments. The higher the residual value in comparison to the vehicle’s initial cost, the lower your monthly payment. Furthermore, some automobile makers and lessors offer subsidized residual values in order way to make your monthly payments less expensive. For instance, if your car is worth $20,000 and is expected to be worth $15,000 at expiration of the lease, you’ll pay a lower payment than if you select the $20,000 car that will be worth $10,000. In the second case the lessor must recoup a larger proportion of the car’s worth and thus will be charging you more. Key takeaway
Knowing the value of a vehicle’s residual can help you figure out the type of car and which type of financing is best for you.
6. Do you expect a wear-and-tear evaluation? You should ask your lender to inform you if and the method by which wear and tear will be evaluated upon returning the vehicle. When you are done with your lease, the car will be inspected for any damage on the exterior, such as scratches, dents and cracks, plus internal damage such as the presence of stains. The car will be assessed for any excessive damage however you will not be required to pay fees for an inspection. The law also stipulates that standards for wear and tear are to be reasonable. The standards are based on the number of miles driven as well as any damage that was done to your vehicle. If your vehicle is in the process of undergoing minor damage, the cost of touch-ups before your assessment may be worth it. What you should take away
Knowing the way wear and tear is determined will prepare you for any end-of-lease payments.
7. What is the»money factor? What is the «money factor» represents the total amount you’ll have to pay in finance charges for the leased vehicle. It’s equivalent to the interest rate you’d pay for a brand new car. It’s usually represented in the small decimal. By multiplying it by 2,400, you will reveal the annual percentage you’re having to pay for lease. For example, if you’re accepted for a lease that has an amount of .0030 is equivalent to the interest of 7.2 percent. Your credit score is a major factor in the cash factor, therefore, prior to going to the leasing office, you should be aware of your credit score. You are not able to negotiate this number because lenders typically decide on the number. The most important thing to remember is
A cash factor isn’t the identical to an APR but it can determine how much you’ll pay on top of the lease payment.
8. What is the mileage allowance for leases and what happens if I go over it? The lease mileage allowance is the number of miles you are allowed to drive without any additional costs. The typical lease allows up to 12,000 miles or more before charges begin to accrue. Extra mileage charges can range between 10 and 25 cents for each mile, which adds up quickly. Be aware of your mileage allowance and anticipate your driving habits during your lease. Any long-distance road trips could cost you. Although the miles allowance is usually a negotiated number, changing it will have an impact on your lease payment. The most important thing to remember is
If you exceed your lease mileage allowance, it will cost you.
9. What happens if I’m unable to pay my lease? Although few plan to fall behind on lease payments, it is important to understand what could occur if you fail to make the payment. A default typically happens in the event that you don’t make three or more payments in the same row. In the majority of cases, not paying your lease leads to and negatively affects your credit score, however every lessor handles this situation differently. There are many companies that offer grace periods that you should inquire about prior to signing the lease. It is also wise to ask about a worst-case scenario where you default. After a certain period of time, the lender may often charge you an early end-of-term fee. Before signing, you should know the price. Key takeaway
Each lender handles default in a different way So, make sure to inquire ahead of time to know what penalties can be expected.
10. Can the lease be extended? It is common to extend your lease for a few months at the same cost, but many lessors are limited. Even if you are unsure whether you will need for an extension of your lease inquire whether extending it will change the terms of the original lease or result in new cost. Knowing the cost upfront will help you better plan the time when your lease is due to expire. In addition to any the possibility of lease extensions, you should inquire about the termination fee. The company must inform the customer of what circumstances the leasing company can demand their vehicle back or can change the terms of the contract. Key takeaway
Inquiring about lease extensions ahead of time will ensure you don’t get caught off guard by charges if you want longer time after the expiration of the lease.
Last considerations to bear in mind before leasing Leasing a vehicle could be an excellent option for those looking to test drive the newest vehicle options without investing in buying a car. Here are a few pros and cons to bear in mind while . Pros Leasing can be cost-effective. Drivers who aren’t very active and therefore don’t have to exceed the mileage limit of a lease might find leasing to be a better option for their budget than buying the new car. You can get a new car every few years. If you enjoy driving the latest models with the most recent technology, a lease permits you to upgrade every few years once your contract is over. Cons Leasing comes with restrictions that which you can’t get when purchasing cars. If you lease a car, you’ll be subject to limits on the number of miles you travel. It’s also essential to keep the car in good working order so that you don’t incur additional costs at the time the lease expires. It is not possible to earn equity when leasing the vehicle. If you switch between leases you won’t be building any equity in the vehicle. Before heading to a dealer to ask questions about leasing, consider your driving habits to see whether leasing is the best option for you. It’s a good beginning point to evaluate potential savings. The next steps are leasing a car. is a significant commitment however, it’s a good investment when you are aware of what you’re getting into. Be prepared. Make sure you ask the right questions and read the details of the lease agreement to ensure you get the best deal. Find out more
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Written by
Allison Martin’s work began over 10 years prior to that as a digital content strategist, and she’s since published in numerous prestigious financial media outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.
Edited by Helen Wilbers Edited by
Helen Wilbers has been editing for Bankrate since late 2022. He is a fan of the clarity of his reporting, which helps readers confidently land deals and make the best choices for their finances. He specializes in small and auto loans.
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