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 offering you interactive tools and financial calculators, publishing original and objective content. This allows you to conduct your own research and compare data for free and help you make informed financial decisions. Bankrate has agreements with issuers such as, 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 site are from companies who pay us. This compensation could affect how and when products are featured on this site, including such things as the order in which they may be listed within the categories of listing and other categories, unless prohibited by law for our mortgage, home equity and other products that lend money to homeowners. This compensation, however, does affect the information we publish, or the reviews that you see on this site. We do not contain the universe of companies or financial offerings that could be open to you. Thomas Barwick/Getty Images
8 min read published on January 11, 2023.
Dan Miller Written Dan Miller Written by Points and Miles Expert Contributor Dan Miller is a former contributing writer for Bankrate. Dan covered loans, home equity and managing debts in his writing. The article was edited by Chelsea Wing Edited by Student loans editor Chelsea has been working at Bankrate since early 2020. She’s committed to helping students to navigate the steep costs of college and simplifying the complex world that are associated with student loans. The Bankrate promises
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So, this compensation can affect the way, location and in what order items are listed in the event that they are not permitted by law. This is the case for our mortgage home equity, mortgage and other home lending products. Other factors, like our own proprietary website rules and whether a product is available within your area or at your self-selected credit score range can also impact how and where products appear on this website. Although we try to provide a wide range offers, Bankrate does not include information about every credit or financial item or product. You can get a car that you can drive around for a predetermined amount of time and mileage. It’s similar to renting an apartment rather than purchasing a home. There’s less commitment to the long term involved, but you still have to be responsible for the cost. A monthly lease cost for a car is typically lower than purchasing it on an . Drivers save an average of $138 per month in monthly payments as per the fourth quarter of 2022. But there are pitfalls to be aware of. Seven mistakes to avoid while leasing a car . Leasing a car may lower your costs however it could be very costly if you don’t read the fine print. Avoid these five common mistakes if you decide to lease your next car. 1. Paying too much money upfront Car dealers offer low monthly lease rates for new cars, however you might have to pay several thousand dollars upfront in order to secure the affordable monthly payment. This money will cover a part of the lease upfront. If the car is wrecked or stolen within the first few months, you will reimburse the leasing company for the value of the car, but the leasing company would likely not refund your down amount. You’d be out of a carand the upfront money you handed over to the leasing company will essentially disappear. It’s recommended you spend no more than $2,000 in the beginning when you lease a vehicle. In some cases, it may make sense to make no deposit and roll all of your fees into your monthly lease payment. Should something happen to the vehicle prior to the expiration of the lease term, at least the leasing company doesn’t own a big chunk of your cash. 2. Do not negotiate the lease agreement. Several components of lease agreements are often , including the buyout price. The amount you’ll be paying the dealer if you choose to purchase the vehicle when the lease expires. Disposition cost: This fee covers the dealer’s costs in preparing the car for sale after it’s returned. Gross capitalized cost: Also referred to as the car’s sale price and it affects the monthly payment as well as the purchase price. The allowance for mileage: Leases have a preset amount of miles you’re permitted to drive annually, and not adhering to the limit will result in additional fees unless you purchase the vehicle after the lease ends. Money factor: The cost you’ll have to pay for leasing the vehicle — in essence, your interest. If you don’t negotiate these numbers, it could result in you leaving thousands or hundreds of dollars in cost savings on the table. 3. Not buying gap insurance If you are driving a car that you lease it is your responsibility to take out . The “gap” refers to the gap between the amount you owe on your lease and the value of the car. Let’s say your contract states that at the expiration of the lease, you can buy this car with a price of $13,000. If you are involved in a crash and destroy the car prior to when the lease is up your insurance company will determine the car’s current market value and pay that amount to the dealer that is the owner of the vehicle. In the event that the insurance company states that the market value is $9,000. In this case you’ll have to pay $4,000 out of pocket to pay for the gap between the lease contract’s residual value and its actual market value — in the event that you don’t already have gap coverage. The gap insurance will pay the difference. A lot of leases offer gap insurance. The dealer may offer to sell you gap insurance but you may get a better policy with a traditional insurance company. Whatever the case, the insurance coverage is well worth the cost. 4. Underestimating how many miles you’ll put on the car. To avoid additional charges, know your driving habits prior to renting a vehicle. Consider your daily commute and how often you take long drives. You can request an increase in the mileage limit when you’re certain you’ll travel more than your contract allows. But it’s likely to increase your monthly payment due to the fact that more miles cause a greater amount of depreciation. It is common for lease contracts to stipulate annual mileage limits of 10,000, 12,000 or 15,000 mile. If you exceed these mileage limits, you could be charged 30 cents per mile at the end of the lease. If, for instance, you exceed the limit by 5,000 miles, then you may end with a debt of $1,500 — or 30 cents per mile- when you turn the car in at the expiration of the lease. 5. The car is not maintained properly In the event that your vehicle is damaged that goes beyond normal wear and wear and tear, you could end up in the position of paying extra charges when it’s time to return it to the dealer. If your car is damaged by an injury but the damage is less than the width on the outside of a driver’s licence or business card, many companies may consider it normal use and won’t issue a fine. If the leasing company believes any damage excessive, it could charge additional charges. The definition of normal use may differ from dealer to dealership. Your lessor will inspect the car before you turn it in and look for scrapes and dents on the body and wheels as well as damage to the windshield and windows, an excessive amount of wear and tear on tires, and scratches or stains on the upholstery. Don’t think that the inspector will be gentle. 6. If you lease a car for too long Make sure that the lease duration exceeds or is less than the warranty duration of the car. Warranty terms vary from manufacturer to producer, but typically last the equivalent of 36,000 miles or three years, depending on what occurs first. If you intend to keep the vehicle for longer than the warranty period it may be necessary to consider an extended warranty. Otherwise, you could be liable for the cost of maintenance and repairs for a vehicle that you do not have while paying monthly lease payments. It’s probably better to buy the car if you intend to lease it for an extended time frame, suggests Barbara Terry, a Texas-based auto writer and expert. “If the driver owns the car it would be his responsibility to buy the car and pay for maintenance however, he can keep driving it over several years without having to worry about a mandatory monthly rental payment,” Terry says. Utilize an app to determine whether buying or leasing an automobile can save you cash over the long term. 7. Don’t think about lease-specific insurance requirements If you’ve previously financed a car or truck, you’re likely to know that most lenders require you to be covered for collision and comprehensive. If this is your first time however, you may not be aware that you might also need to raise your liability limits. The liability coverage section of your insurance policy covers for medical expenses and property damage when you’re responsible for an accident. In addition to collision and comprehensive the majority of leasing companies will require you to have minimum liability limits of $100,000 per person and $300,000 for each accident for , along with $50,000 for . It is possible to see this referred to as 100/300/50 on your insurance document. Depending on your current liability insurance, these limits may increase your coverage, which could already be higher than you’re used to prior to adding your newly leased vehicle. To avoid any surprises, you may want to get an insurance quote for the car you’re considering prior to signing the dotted line. How do you lease a car A car lease is a way to “borrow” a car instead of purchasing a brand used or brand new car. It usually comes with an agreement for three or four years and an in-depth , so there are numerous things to think about prior to signing the long-term contract. Choosing to lease instead of buying a vehicle can be a great way to drive a newer vehicle with the most recent technologies and features at a lower money per month. If you’re considering leasing a car, you should follow these steps: Conduct your homework. You can lease almost any kind of car that was released in the recent model years. It is important to narrow down the type and the brand you’re looking at first before factoring in how the price can be incorporated into your budget. To , pay close attention to your lifestyle and how the car can fit into your daily routine. Bankrate tip
When budgeting, prepare to make a small payment before you drive off the lot to cover tax and fees. In addition, if you want to lock in lower monthly installments throughout the lease, look into putting a larger amount down.
Visit dealers next, stop by some dealers and take several test drives. That will help you find what exactly you are looking for. It is possible to call ahead to determine what’s available and if testing is currently permitted. Bankrate tip
When you go to dealer showrooms be aware that you could receive higher rates. Have you not let the leasing market go unnoticed and, even though it is still believed to be cheaper than buying be prepared for the possibility of competition.
You can negotiate the lease terms It is pretty much all to be discussed during the lease process. The negotiation stage is the sole chance you’ll have to obtain the benefits you’d like to see in writing. If you want to be the most effective negotiator look up current prices on websites such as Kelley Blue Book and remember to negotiate more than just price. Bankrate tip
A good lease deal is one that will leave you with as little cost over the life of the loan as you can- an initial down payment is included. If you are afraid of negotiation take a trusted person to help you navigate the difficult discussion. Be aware that could make securing the best lease terms more challenging.
Compare offers Take advantage of the internet and evaluate the offers you’re offered to ensure you get the best deal. Check out a few dealerships before you sign off on your car. Be mindful of the monthly cost, mileage cap, purchase price, money factor and capitalized vehicle cost. Be sure to look over the fees the lessor is charging, including the acquisition fee, disposition fee, and early termination fee to see if it’s comparable to similar offerings. And don’t forget to inquire about the payment due when you sign the contract. Bankrate tip
When you compare lease deals, look at the fine print as well as the vehicle itself. While driving for a test drive be sure to observe how the vehicle drives and if it will fit to your needs.
Maintain the car throughout your lease Remember that you must turn in the vehicle at the end of the lease. If the car is not in good condition, you might need to pay additional fees. When you lease a vehicle, ask about the guidelines on the lease’s end-of-lease conditions. These guidelines define the kinds of damages you’ll need to cover prior to return your car. Bankrate tip
If your car is severely damaged, drivers are likely to be charged at market-rate prices for repairs. In the event of a collision, you’ll be offered a few options. You could either return your vehicle to the dealer, purchase the car or lease a new car.
Car leasing vs. buying a car Consider your primary considerations when deciding on whether to . Consider how many miles you drive annually; if you travel a lot the cost of leasing could become prohibitive. Consider the benefits and drawbacks of each method. Benefits of leasing
Cons of leasing
Because you are not paying the entire value of the car, you’ll typically have less of a monthly installment.
When the term ends on the lease, the vehicle is no longer yours anymore. You will have to find an alternative vehicle or take the vehicle you leased.
If driving a newer or more expensive automobile is important to you, then your monthly lease payments will be more affordable than having a huge down purchase.
Additionally, you may be required to pay a car turn-in fee at the end of the lease , if you don’t lease another car at the dealers.
If you sign a lease for a car generally, you get a new car. That can help save on maintenance expenses.
The majority of leases have the option of a mileage allowance. when you exceed the allotted amount, you’ll be charged massive per-mile costs.
Next steps If leasing is the right choice for you, you must do your research, compare and make sure you lease is compatible with your driving style and budget. Pay close attention to your monthly fees and clauses. In order to calculate your monthly payment amount and the amount of your monthly payment, the dealer will evaluate the value of your new vehicle versus the residual worth. Like with any transaction involving financing, the higher your credit score, the lower your interest rate.
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Written by Points and Miles Expert Contributor Dan Miller is a former contributor to Bankrate. Dan wrote about loans, home equity and managing debt in his work. Written by Chelsea Wing Edited by Student loans editor Chelsea is with Bankrate since the beginning of 2020. She’s dedicated to helping students manage the steep cost of college and dissecting the complexity that are associated with student loans.
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