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 tools and financial calculators, publishing original and objective content. This allows you to conduct your own research and compare information for free – so that you can 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 Earn Money The offers that appear on this site are from companies that pay us. This compensation may impact how and where products are displayed on the site, such as, for example, the order in which they may be listed within the categories of listing, except where prohibited by law. This applies to our mortgage or home equity products, as well as other home lending products. But this compensation does have no impact on the content we publish or the reviews that you read on this site. We do not cover the entire universe of businesses 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 writer who contributed to Bankrate. Dan wrote about loans, home equity , and debt management in his work. Written by Chelsea Wing Edited by Student loans editor Chelsea is with Bankrate since the beginning of 2020. She is invested in helping students navigate the high costs of college and breaking down the complexities in student loans. The Bankrate promises
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We receive compensation for placement of sponsored products andservices or through you clicking certain links posted on our site. Therefore, this compensation may affect the way, location and in what order products 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, such as our own proprietary website rules and whether the product is available in your region or within your own personal credit score can also impact how and where products appear on this site. We strive to offer a wide range offers, Bankrate does not include details about every credit or financial item or product. gives you a vehicle that you can drive around for a predetermined number of months and miles. It’s similar to renting an apartment instead of buying a house. There’s less commitment to the long term required, however you need to pay for it. The monthly cost of leasing a vehicle is typically lower than purchasing it with an . Drivers save an average of $138 per monthly payment as per the 4th quarter in 2022. However, there are downsides to be aware of. Seven mistakes to avoid when leasing a car . Leasing a car could lower your monthly payments however, it can also be very costly if you do not pay attention to the small print. Avoid these five common mistakes if you decide to lease your next vehicle. 1. Paying too much money upfront Car dealers advertise low monthly lease payment on new vehicles, but you could be required to pay a few thousand dollars upfront in order to secure the affordable monthly payment. The money is used to pay for a portion of the lease in advance. If the car is wrecked or stolen in the first few months, you can reimburse the leasing company for the cost of the vehicle, however the leasing company may not be able to refund the down amount. You’d lose your car, and that upfront cash you paid towards the company leasing it would disappear. It is recommended that you pay no more than around $2,000 upfront when you lease a car. In some instances it might be beneficial to put nothing down and roll all of your fee costs into the monthly installment. In the event that something goes wrong with your vehicle before the end of the lease it is at least that the leasing company won’t be able to take a big chunk of your cash. 2. The lease contract is not negotiated. Certain elements of lease agreements typically include the Buyout price: The amount you’ll be paying the dealer if you choose to buy the vehicle after the lease ends. Disposition cost: This fee is used to pay the costs of the dealer in preparing the car for sale after it’s turned in. Gross capitalized cost: Also referred to as the price of sale for the vehicle and it affects the monthly payment as well as the buyout price. Mileage allowance: Leases include a preset number of miles you’re allowed to drive annually, and not adhering to this limit means that you’ll be charged added fees unless you buy the vehicle after the lease ends. Money factor: The cost you’ll have to pay for leasing the vehicle — in essence it’s the rate of interest. Failing to negotiate these figures could result in you leaving thousands or hundreds of dollars in cost savings on the table. 3. Don’t buy gap insurance if you are driving a car that you lease it is your responsibility to pay for . The “gap” is the gap between the amount you owe on your lease and the car’s value. Let’s say your contract states that at the end of the lease, you will be able to purchase your car at $13,000. If you crash and total the car before the lease expires the insurance company will calculate the car’s current market value and then pay the amount to the dealership which owns the vehicle. If the insurance company claims that the value of the car is $9,000. In that scenario, you’ll probably be required to pay $4,000 of pocket to cover the difference between the lease’s residual value and its actual market value – unless you are covered by gap insurance. The gap coverage will take care of the difference. A lot of leases offer gap insurance. The leasing company may sell you gap insurance but you may get a better policy by contacting a traditional insurance firm. Whatever the case, the insurance coverage is worth the modest investment. 4. Don’t underestimate the amount of miles you’ll travel in the car. To avoid additional fees, consider your driving habits before leasing the vehicle. Consider your daily commute and the frequency of your long journeys. You could ask for a higher mileage limit if you know you’ll probably be driving more miles than your agreement permits. However, that will probably increase the amount you pay each month since additional miles could cause a greater amount of depreciation. It’s typical for leasing contracts to have annual mileage limitations of 12,000, 10,000 or 15,000 mile. If you go over those limit, you could be charged up to 30 cents for each additional mile after the expiration period. For instance, if you exceed the mileage limit by more than 5,000 miles, you could end paying an additional $1500 — at thirty cents for each mile -at the time you turn the vehicle in at the end period. 5. Not maintaining the car If your car has damage that goes beyond normal wear and wear, you could be charged extra charges when you have to take it back to the dealer. If a car has scratches but the scratch is smaller than the width that is the border of a driver’s license or business cards, a lot of companies will view it as normal use and probably won’t issue a fine. If the leasing firm considers any damage to be too severe, it could charge additional charges. The definition of normal usage will differ from dealer dealership. The lessor will examine the vehicle before turning it in and look for dents and scrapes on the body and the wheels and windshields, scratches to the glass and windows and excessive wear on the tires, and staining or tears in the upholstery. Don’t assume that your inspector is lenient. 6. If you lease a car for too long Make sure that the lease duration matches or is shorter than the car’s warranty period. Warranties vary from manufacturer to producer, but typically last up to 3,600 miles for three years whichever occurs first. If you keep the car for more than the warranty duration, you may have to consider the possibility of an extended warranty. Otherwise, you could be responsible for maintenance and repair costs on a vehicle you don’t own , while also making monthly lease payment. It’s likely to be better off buying the car if you’re planning to lease it over a longer time, according to Barbara Terry, a Texas-based automotive writer and expert. “If the driver owns the vehicle then he’d need to purchase the vehicle and make maintenance payments, but then he could remain driving the car for a number of years without having to worry about a mandatory monthly rental cost,” Terry says. Utilize an app to determine the best option for you. Whether leasing or purchasing a car can help you save in the long run. 7. Don’t think about the lease-specific insurance requirements. If you’ve ever financed a car or truck, you’re likely to know that all lenders require that you be covered for collision and comprehensive. If this is your first time however, you may not know that you may also have to increase the limits of your liability. The liability coverage section of your car insurance policy will pay for damages to property and medical expenses if you’re at fault in an accident. In addition to comprehensive and collision leasing, the majority of leasing companies require that you maintain liability limits of at least $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. Based on the current liability insurance, these limits may increase your coverage, which could already be higher than you’re used too after having leased your vehicle. To avoid unexpected costs You may wish to get an insurance quote for the car you’re interested in before you sign the dotted line. How do you lease a car A car lease allows you to “borrow” a car instead of purchasing a new or used car. It usually comes with an agreement for three or four years as well as a thorough explanation, which means there are many factors to consider prior to signing the long-term contract. A lease option instead of buying a car could be a great option to get a brand new vehicle with the most recent technology and features , and pay less amount of money each month. If you’re looking to lease a car, follow these steps: Do your homework. You can lease almost any kind of car made in recent years. It is important be able to pinpoint the type and brand you are most interested in before considering how the cost can be incorporated into your budget. To , pay close attention to your lifestyle and how the vehicle can fit into your daily routine. Bankrate tip
When planning your budget, you should make a small payment prior to leaving the lot to cover the cost of taxes and other fees. If you’d like to lock in lower monthly payments throughout the lease, think about putting down additional cash.
Visit dealers Next, visit several dealers and do some test drives. It will help narrow down what exactly you’re looking for. It may be beneficial to contact us ahead of time and get an idea of what is available and whether test drives are currently allowed. Bankrate tip
If you go to dealer locations, remember that you may be met with higher prices. Have you not let the leasing market go unnoticed and, even though it is still believed to be cheaper than buying be prepared for competition.
You can negotiate the terms of your lease The majority of the lease terms are up for during the leasing process. The negotiation stage is the sole chance to secure the benefits you’d like to see in writing. To be the best negotiation expert, check current pricing on sites like Kelley Blue Book and remember to go beyond price. Tips for negotiating bank rates
A good lease deal is one that leaves you paying as little throughout the term of the loan as is possible, with the an initial down payment is included. If negotiation intimidates you, bring a trusted friend to handle the hard discussion. Also, keep in mind that it could make getting an improved lease more difficult.
Compare offers Take advantage of online resources and look at the deals you’re offered to ensure you get the best deal. Check out a few dealerships before signing off on your vehicle. Be mindful of the monthly costs and mileage cap, the buyout price, the capitalized cost of your vehicle. Also, take a look at the costs the leasing company is charging, such as the acquisition fee, disposition fee, and early termination fee to see if it’s comparable to other similar options. Don’t forget to ask about the payment due at signing. Tips for banks
When comparing lease offers, look at the fine print as well as the vehicle itself. When test driving, pay attention to how the vehicle drives and if it will fit with your lifestyle.
Keep the car in good condition throughout your lease . Keep in mind that you are required to surrender the vehicle at the end of the lease term. If it’s in poor condition, you may be required to pay for additional fees. When you lease a vehicle be sure to inquire about the guidelines on the lease’s end-of-lease conditions. These guidelines define the kinds of damage you would have to cover before you return the car. Tips for Bankrate
If the car is significantly damaged, owners can expect to be charged the full market price for repairs. If you’re in this situation , you’ll have several choices. You can choose to either sell your car at the dealership, or purchase the vehicle or lease a new car.
Leasing a car as opposed to. buying a car Consider your primary considerations when deciding on whether to . Consider the amount of miles you travel annually; if you travel a lot, leasing may get expensive. Be aware of the advantages and disadvantages of each method. Pros of leasing
Cons of leasing
Since you’re not paying for the whole cost of the vehicle, you’ll usually pay a lower monthly payment.
At the end of leasing, your vehicle is not yours. You’ll need to find an alternative vehicle or take out the car you have leased.
If owning a more modern or more expensive automobile is important to you, your monthly lease payment will be less expensive than putting down a large purchase.
You also may have to pay a car turn-in fee at the end of the lease if you don’t purchase a new car through the dealership.
When you lease a car, you are usually getting a new car. This can save you money on maintenance expenses.
The majority of leases include the option of a mileage allowance. when you exceed the allotted amount, you’ll be charged huge per-mile fees.
Next steps If leasing is right for you, do your research, compare and to ensure that you lease fits your driving habits and budget. Pay close attention to your monthly fees and terms and conditions. In order to calculate your monthly payment amount, the dealer will analyze the value of the new car versus the residual worth. Similar to any other transaction that involves financing, the higher your credit score is, the lower the interest rate.
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Authored by Points and Miles Expert Contributor Dan Miller is a former contributor to Bankrate. Dan covered loans, home equity and debt management in his work. Written by Chelsea Wing Edited by Student loans editor Chelsea has been with Bankrate since early 2020. She is invested in helping students to navigate the daunting cost of college as well as simplifying the complex world that are associated with student loans.
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