Mistakes to avoid when leasing a car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by providing you with interactive financial calculators and tools that provide objective and original content. We also allow you to conduct research and compare data for free to help you make sound financial decisions. Bankrate has agreements with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this website come from companies who pay 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, mortgage and other home lending products. This compensation, however, does have no impact on the content we publish or the reviews you read on this site. We do not cover the vast array of companies or financial deals that might be available to you. Thomas Barwick/Getty Images
8 min read published January 11, 2023
Authored by Dan Miller Written by Points and Miles Expert Contributor Dan Miller is a former contributor to Bankrate. Dan was a writer for Bankrate who covered loans, home equity and debt management in his writing. The article was edited by Chelsea Wing Edited by Student loans editor Chelsea has been with Bankrate since early 2020. She is invested in helping students navigate the high cost of college as well as simplifying the complex world that are associated with student loans. The Bankrate guarantee
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So, this compensation can affect the way, location and in what order items are displayed within the categories of listing, except where prohibited by law. This is the case for our mortgage home equity, mortgage and other home lending products. Other factors, like our own rules for our website and whether the product is offered in your region or within your self-selected credit score range may also influence how and when products are featured on this website. Although we try to provide a wide range offers, Bankrate does not include information about every financial or credit item or product. It gives you a car to drive for a fixed amount of time and mileage. It’s like leasing an apartment in lieu of buying a home. There’s less commitment to the long term to make, however, you must pay for it. A monthly lease cost for a vehicle 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 consider. 7 mistakes to avoid when leasing a vehicle. Leases can lower your payments however it could be costly if you don’t read the details. Avoid these five common mistakes in the event that you choose to lease your next vehicle. 1. Don’t pay too much upfront Dealers advertise low monthly lease payment on new vehicles, but you may need to pay several thousand dollars upfront to get the affordable monthly payment. The money is used to pay for a portion of the lease upfront. If the vehicle is damaged or stolen within the first few months, you issuing company will be reimbursed for the cost of the vehicle, however the leasing company will likely not refund your down amount. The car would be a total loss. carand the upfront amount you gave for the lease company will essentially disappear. It is recommended that you pay no more than $2,000 in the beginning when you lease a vehicle. In certain situations it’s possible to pay nothing upfront and then roll the entire fees into your monthly installment. In the event that something goes wrong with the vehicle before the end of the lease then at the very least, the leasing company doesn’t have an enormous amount of money. 2. The lease contract is not negotiated. Certain elements of lease agreements are usually included, such as the: Buyout price: The amount you’ll pay the dealer if you opt to purchase the vehicle when the lease expires. Disposition fee: This fee is used to pay the costs of the dealer for preparing your vehicle to be sold once it’s turned in. Gross capitalized cost: Also referred to as the car’s sale price and it affects the monthly payment and the purchase price. Mileage allowance: Leases have a preset number of miles you’re allowed to drive annually, and in violation of the limit will result in additional charges unless you purchase the vehicle after the lease ends. Money factor: The price you pay to lease the vehicle — in essence, the interest rate. In the event that you do not negotiate these figures, it could mean you’re leaving several hundreds or thousands of dollars in cost savings on the table. 3. Not buying gap insurance If you drive a leased car and you want to be able to pay for . The “gap” refers to the difference between the balance you owe on your lease and the worth of the vehicle. If your contract says that at the end of the lease, you will be able to purchase your car at $13,000. If you wreck and damage the car prior to when the lease is up your insurance company will calculate the car’s current market value and transfer that value to the dealership that owns the vehicle. If the insurance company claims that the value of the car is $9,000. In that scenario you’ll have to pay $4,000 out of pocket to pay for the gap between the lease contract’s residual value and the actual market value – unless you have gap insurance. The gap coverage will cover the difference. Most leases come with gap insurance. The seller may be able to offer you gap insurance, however, you might get a better policy with a traditional insurance company. However, the protection is well worth the small amount of money. 4. Underestimating how many miles you’ll drive on the car. To avoid additional costs, be aware of your driving habits prior to renting a vehicle. Take note of your commute each day and how often you make long journeys. You could ask for more mileage when you’re certain you’ll be driving more miles than your contract allows. But, it will likely raise your monthly payments due to the fact that more miles result in greater depreciation. It’s typical for leasing contracts to have annual mileage limits of 10,000, 12,000 or 15,000 miles. If you go over those limit, you could be charged as much as 30 cents per mile when you reach the end period. For instance, if you exceed the mileage limit by more than 5,000 miles, then you may end up owing an extra $1,500 — or the rate of 30 cents per mileat the time you turn the car in at the close of the lease. 5. Insufficient maintenance on the vehicle In the event that your vehicle is damaged that is more than normal wear and wear, you could be charged additional fees when you have to take it back to the dealer. If a car has a scratch but the mark is not larger than the size that is the border of the driver’s license or business credit card many companies may consider it normal usage and will likely not charge a penalty. If the leasing company believes any damage to be too severe, it could charge additional charges. The definition of normal usage may differ from dealer to dealership. Your lender will check the car before you turn it in and look for scratches and dents on the body and the wheels as well as damage to the windshield and windows as well as excessive wear on the tires, and tears or stains in the interior upholstery. Do not assume that your inspection will be gentle. 6. A car you are leasing for too long Make sure that the lease duration matches or is shorter than the warranty period of the vehicle. Warranties vary from manufacturer to producer, but typically last 3,600 miles for three years whichever occurs first. If you plan to keep the car for longer than the warranty time then you might need to look into an extended warranty. If not, you’ll be responsible for repair and maintenance costs on a vehicle you don’t own , while also making monthly lease payments. It’s likely to be better off buying the vehicle if you plan to lease it over a longer time, according to Barbara Terry, a Texas-based automobile specialist and columnist. “If the owner owns the vehicle it would be his responsibility to buy the vehicle and make maintenance payments, but then he could continue to drive it for many years without worrying about a monthly lease cost,” Terry says. Make use of an calculator to determine the best option for you. Whether leasing or purchasing a car will save you more cash over the long term. 7. Don’t think about lease-specific insurance requirements If you’ve ever financed a car, you may already know that the majority of lenders require you to carry comprehensive and collision. If you’re making your first attempt , however, you might not be aware that you may also have to increase the limits of your liability. The liability coverage part of your auto policy pays for the other party’s injuries and medical costs when you’re the cause of an accident. In addition to collision and comprehensive leasing, the majority of leasing companies require that you carry liability limits of at least $100,000 per person and $300,000 for each accident, in addition to $50,000 for . It is possible to see this referred to as 100/300/50 on your policy document. Based on your current liability coverage your limits may be increased your — which may already be greater than what you’re used too after adding your newly leased vehicle. To avoid any surprises, you may want to get an insurance quote for the vehicle you’re thinking of leasing before you sign the dotted line. How to lease a car A car lease allows you to “borrow” an automobile instead of buying a used or brand new car. It usually comes with a three-year or four-year contract as well as a thorough explanation, which means there are numerous aspects to take into consideration before signing off on the long-term contract. The option of leasing instead of buying a car is a fantastic way to get a brand new car that has the latest technologies and features at a lower money per month. If you’re looking to lease a car, follow these steps: Do your research . You can lease just about every kind of vehicle that has been made in recent years. You’ll need decide on the kind and model you’re interested in first while considering how the cost will fit into your budget. Pay attention to your lifestyle and how the vehicle will fit into your lifestyle. Bankrate tip
When planning your budget, you should pay a small amount prior to leaving the lot to cover taxes and fees. More than that, if you’d like to secure lower monthly payments throughout the lease, think about putting down additional cash.
Visit dealers next, stop by a few dealers and take several test drives. It will help determine what you’re looking for. It is possible to contact us ahead of time and find out what is available and whether testing is currently permitted. Bankrate tip
When you go to dealer showrooms be aware that you could encounter higher costs. Have you not left the leasing market undisturbed and while it still tends to be cheaper than buying be prepared for an increase in competition.
You can negotiate the terms of your lease It is pretty much all to be discussed during the lease process. And the negotiation phase is the only opportunity you will have to get the perks you want in writing. For the top negotiator take a look at the current price on sites like Kelley Blue Book and remember to go beyond price. Bankrate tip
A good lease agreement is one that will leave you with as little cost over the life of the loan as possible — beginning with a down payment. If negotiation intimidates you take a trusted person to help you navigate the difficult conversation. Also, keep in mind that it could make getting an improved lease more challenging.
Compare offers Take advantage of the internet and compare the offers that you can get to find the most value. Check out several dealerships before you sign off on your car. Be mindful of the monthly cost, mileage cap, buyout price, capitalized vehicle cost. Be sure to look over the charges the lender is charging, which includes the purchase fee, disposition fee, and early termination fee, to gauge if it’s similar to similar offers. Also, don’t forget to inquire about the due amount at signing. Tips for banks
When comparing lease options take a look at the fine print as well as the car itself. While driving for a test drive be sure to observe the way the car drives and if it will fit to your needs.
Keep the car in good condition throughout your lease Remember that you must turn in the vehicle at the end of the lease. If it’s in poor condition, you may need to pay additional fees. Before leasing a car, ask about the guidelines on the lease-end condition. These guidelines outline the kinds of damages you’ll need to pay for before you return the vehicle. Bankrate tip
If the vehicle is seriously damaged, motorists will be charged at market-rate prices for repairs. At the , you’ll have several choices. You could either return your car at the dealership, purchase the car or lease a new car.
Leasing a car as opposed to. buying a car . Consider your needs when deciding if to . Reflect on the number of miles you drive per year; if you travel a lot it could be costly to lease. Think about the pros and cons of each option. The advantages of leasing
Pros and cons of leasing
Because you’re not paying the entire value of the car, you will usually have less of a monthly installment.
At the end of your lease period, you will find that the vehicle will no longer be yours anymore. You’ll need to find a new car or buy the vehicle you leased.
If owning a brand new or luxury automobile is essential to you, your monthly lease costs will be lower than making a big down payment to buy it.
Additionally, you may be required to pay a car turn-in charge at the end of the lease , if you don’t purchase a new car at the dealers.
If you sign a lease for a car generally, you get a brand new vehicle. That can help save on maintenance expenses.
The majority of leases have an allowance for mileage — if you drive more than the allotted amount, you’ll be charged hefty per-mile charges.
Next steps If leasing is the right choice for you, make sure to do your homework, shop around and ensure you get a lease that matches your driving habits and budget. Pay close attention to your monthly fees and specifics and terms. To calculate your monthly payment amount and the amount of your monthly payment, the dealer will evaluate the value of the new vehicle versus its residual value. Like with any transaction involving financing, the better your credit score is, the lower the interest rate.
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Written by Points and Miles Expert Contributor Dan Miller is a former contributing writer for Bankrate. Dan wrote about loans as well as home equity and debt management in his work. The article was edited by Chelsea Wing Edited by Student loans editor Chelsea has been with Bankrate since early 2020. She’s committed to helping students to navigate the daunting costs of college and simplifying the complex world that are associated with student loans.
Student loans editor
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