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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 better financial choices by providing you with interactive financial calculators and tools, publishing original and objective content. We also allow you to conduct research and compare data at no cost and help you make informed financial decisions. Bankrate has partnerships with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website come from companies that pay us. This compensation could affect how and when products are featured on this site, including such things as the sequence in which they be listed within the categories of listing, except where prohibited by law. This applies to our loan products, such as mortgages and home equity, and other home loan products. However, this compensation will affect the information we publish, or the reviews you read on this site. We do not cover the vast array of companies or financial offers that may be available to you.
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6 min read published September 30, 2022
Written by Allison Martin Written by
Allison Martin’s career began more than 10 years prior to that as a digital content strategist. Since then, she’s published in numerous prestigious financial publications such as 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 from late 2022. He believes in the clarity of his reporting, which helps readers successfully get deals and make best choices for their finances. He is an expert in small business and auto loans.
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A car lease lets you lease a car for a few years without having to buy it. It’s an excellent way to get a new car without having to commit financially. It’s particularly beneficial for drivers who travel less than 15,000 miles per year and don’t have to worry about 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 taking out a lease on a car. If this is something you’re thinking of not settling for the first deal you come across. Get yourself set for success by asking these questions before you make a decision. 1. What is the total amount to be paid when I sign the lease? When you sign a lease, you will receive a thorough written statement of everything you must or may have to pay. In the beginning, you may have to pay security deposits and title fees, a reduced capitalized cost as well as monthly payments due at the time of signing as well as registration costs. Knowing the exact amount to pay when signing the lease can help you avoid overspending. Additionally, knowing the cost breakdown can assist you negotiate more effectively. Key takeaway
The payment you sign off on will typically be more expensive than the price that enticed you, so ask for the list of fees prior to signing.
2. What is the length of the lease? The leasing company will inform you the number of payments that the lease covers and how much each one will cost and the date when payment is due. The most commonly used lease terms are 24, 36, 48 and 60 months — however you can also find odd terms, like 39 months. The odd-month deals are intended to make it difficult for you to understand. If you are looking at lease options, keep in mind that a longer lease will provide lower monthly payments, but you’ll pay more . The most important thing to remember is
Be aware of your options prior to concluding a lease and be aware of how the lease term will affect the amount you pay each month.
3. What kind of lease am I signing and what happens after it is over? There are two : close-end as well as open-end. In a closed-end leasing agreement, the leasing company determines an amount according to their estimation of the depreciated value of the vehicle. Even if the vehicle appreciates higher than you anticipated in an end-of-lease, the only extra costs you are responsible for is the extra mileage as well as wear-and-tear costs. The most typical type of lease. If you sign an open-end or financial lease you have to cover an amount that is the sum of the residual value and the actual value at the end period. If the vehicle depreciates faster than anticipated, you could be charged a significant amount at the expiration term. In both cases, read the fine print so you do not get surprised by additional lease charges. What you should take away from this is
Knowing what type of lease you’re signing helps you to better plan for your lease payments.
4. Can I buy the car at the end term of lease? If you’d like to , you may have an option to purchase the car in the amount of the residual value, or purchase price that’s included in the lease contract. But before you , compare the residual value to the value of the vehicle’s retail value to find out if you’re getting a good deal. Also, evaluate the car’s condition to find out if it’s in good shape and hasn’t depreciated significantly. It could be that a buyout isn’t worthwhile unless you’re faced with steep wear and tear costs or penalties for over the limit of mileage. Key takeaway
The lessor may allow you to purchase your lease once the lease period ends however, you must run the numbers to verify that it makes financial sense.
5. Is the value residual of the vehicle? A vehicle’s residual value is the value it is expected to have at end of the lease. Leasing companies determine what the value of residual is, though you can find an estimate . This number can be helpful because it is a key factor in determining your monthly payments. The higher the residual value relative to the car’s original cost, the lower your monthly payment. Furthermore, some automobile makers and lessors offer subsidized residual values as a to make the monthly cost more affordable. For instance, if your car is worth $20k and will be worth $15,000 at the expiration of the lease, you will have a lower payment than if you select a $20,000 car expected to have a value of $10,000. In the second scenario the lender must recuperate a greater portion of the value of the vehicle and will charge you more. Important takeaway
Knowing a vehicle’s residual value will help you decide on the best type of car and which type of financing is best for you.
6. Do you expect a wear-and-tear assessment? Ask your leaser to inform you if and how wear and tear is evaluated when you return the car. At the end of your lease, the vehicle will be examined for any damage on the exterior, such as scratches, dents and cracks, and interior damage like staining. The cost will be assessed for any excessive damage, though you won’t be charged for the inspection. The law also says that wear-and-tear standards are to be reasonable. The standards are based on the number of miles you traveled and the extent of damage to the vehicle. If your vehicle has superficial damages, getting the repairs before you make your assessment could be worth it. Key takeaway
Knowing how wear and tear is determined will prepare you for any lease-end payments.
7. What is the money factor? The “money factor” is the sum you’ll have to pay in finance charges for the leased vehicle. It’s equivalent to the interest rate you’d be paying for a brand new vehicle. It’s usually represented as the small decimal. Then, multiplying it by 2,400 will show the annual percentage you’re taking on for your lease. To illustrate, if you’re granted a lease with a factor of .0030 that’s an interest rate that is 7.2 percent. Your credit score is a major factor in the money factor, so before you go to the leasing office, you should be aware of your credit score. It is not easy to bargain on this amount since the lending institutions usually decide on it. It is the most important lesson to take away
A money factor is not the equivalent to an APR, however, it will decide how much you’ll be charged on top of your lease payment.
8. What is the lease mileage allowance and what happens if I go over it? The lease mileage allowance is the amount of miles you may drive without facing additional charges. Leases usually allow 12,000 or 15,000 miles before fees kick in. Excess mileage fees can range from 10 to 25 cents for each mile. This will quickly accumulate. Understand your mileage allowance and try to anticipate your driving habits during your lease, as any long-distance road trips could cost you. Although the miles allowance can be negotiated number, changing it can impact your payment. Important takeaway
The excess mileage you have allowed for your lease will cost you.
9. What happens if I’m unable to make a lease payment? While few people plan to be behind on their lease payments, it’s crucial to know what can happen if you miss the payment. A default typically occurs when you do not make three or more payments in a row. The inability to pay your lease usually can negatively impact your credit score. However, each lessor approaches this issue differently. Many companies have grace periods that you should ask about before signing the lease. It is also advisable to ask about a worst-case scenario where you default. After a certain amount of time, your lender can frequently demand an early end-of-term fee. Before you sign, be sure to know the price. Key takeaway
Each lender handles default in a different way Therefore, you should inquire prior to time the penalties that could be imposed.
10. Does the lease have the possibility of being extended? It is possible to extend the lease by a few months at the same cost, but the majority of lessors have a limit. If you’re not sure whether you will need for an extension of your lease ask whether the extension will alter the terms of the original lease, or if it could result in additional cost. Knowing the cost upfront will aid you in planning when your lease’s end approaches. Along with the possibility of lease extensions, you should inquire about the termination fee. Companies must disclose under what circumstances they can demand their vehicle back or can change or modify the clauses of the agreement. The most important thing to remember is
Ahead of time will ensure that you don’t have to pay for additional costs if you need more time at the end of your lease.
Final considerations to keep in mind prior to leasing an automobile is a great option for drivers interested in driving the most modern vehicles available without the expense of buying the car. Here are some of the pros and cons to bear in mind while . Pros Leasing can be cost-effective. Drivers who don’t drive much and don’t need to go over a lease’s mileage limits could find leasing to be a better option for their budget than buying a new car. You can purchase a brand new car every couple of years. If you like driving the latest vehicles with the newest technology, leasing allows you to upgrade your vehicle every couple of years when your contract ends. Cons Leasing comes with restrictions that which you can’t get when purchasing the car. If you lease a car, you’ll have to limit the number of miles you travel. It is even more crucial to maintain the vehicle in good working order to avoid additional fees at the time the lease expires. You don’t build equity when you lease a vehicle. If you switch between leases you won’t be building any equity in your vehicle. Before heading to the dealer to ask leasing questions, think about your driving habits and decide whether leasing is the best option for you. A is a great beginning point to evaluate savings potential. The next steps are leasing a car. is a significant commitment but it can pay off if you know what you’re getting into. It’s important to prepare. Make sure you ask the right questions and study the fine print of a lease agreement to secure the best deal possible. Find out more
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Written by
Allison Martin’s career began more than 10 years ago as a digital content strategist, and she’s since published in numerous prestigious financial publications such as 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 believes in transparent reporting that allows readers to easily land deals and make the most appropriate choices regarding their finances. He is a specialist in auto and small business loans.
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