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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 choices by providing you with interactive financial calculators and tools that provide objective and original content, by enabling users to conduct research and compare information for free and help you make financial decisions with confidence. 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 products that are advertised on this website are provided by companies that pay us. This compensation may impact how and where products appear on this website, for example, for example, the sequence in which they be listed within the categories of listing, except where prohibited by law for our mortgage or home equity products, as well as other home lending products. But this compensation does affect the content we publish or the reviews you see on this site. We do not cover the universe of companies or financial offerings that could be accessible to you. Thomas Barwick/Getty Images
8 minutes read. Published 11 January 2023
Written by Dan Miller Written by Points and Miles Expert Contributor Dan Miller is a former writer who contributed to Bankrate. Dan covered loans as well as home equity and debt management in his writing. The article was edited by Chelsea Wing Edited by Student loans editor Chelsea has been working at Bankrate since the beginning of 2020. She is invested in helping students navigate the high cost of college as well as simplifying the complex world in student loans. The Bankrate promise
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There are money-related questions. Bankrate can help. Our experts have been helping you master your finances for more than four years. We strive to continuously give our customers the right advice and tools required to make it through life's financial journey. Bankrate adheres to a strict code of conduct standard of conduct, so you can rest assured that our content is truthful and accurate. Our award-winning editors, reporters and editors provide honest and trustworthy content that will help you make the best financial decisions. The content created by our editorial team is accurate, truthful and is not influenced through our sponsors. We're honest regarding how we're able to bring quality content, competitive rates and helpful tools to you , by describing how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We receive compensation for placement of sponsored products or services, or when you click on certain links posted on our website. This compensation could influence the manner, place and in what order products are listed and categories, unless it is prohibited by law for our mortgage home equity, mortgage and other home loan products. Other factors, such as our own website rules and whether the product is offered in the area you reside in or is within your self-selected credit score range can also impact how and when products are featured on this site. We strive to offer the most diverse selection of products, Bankrate does not include details about every credit or financial product or service. gives you a vehicle which you drive on a predetermined number of months and miles. It's similar to leasing an apartment in lieu of purchasing a home. There is less long-term commitment involved, but you still have to pay for it. Leasing a vehicle is typically lower than purchasing it with an . Drivers save an average of $138 per month in monthly payments in the 4th quarter in 2022. However, there are downsides to consider. Seven mistakes to avoid while leasing a car Leasing can lower your payments however it could be costly if you do not pay attention to the small print. Avoid these five common blunders if you decide to lease your next car. 1. Don't pay too much upfront Dealers advertise low monthly lease payment on new vehicles, but you might be required to pay a few thousands of dollars in advance to receive an affordable rate. That money covers a portion of the lease upfront. If the vehicle is damaged or stolen in the initial few months, you will reimburse the leasing company for the value of the vehicle, however the leasing company would likely not reimburse your down payment. The car would be a total loss. vehicle, and the initial cash you paid for the lease company would essentially disappear. It is recommended that you pay no more than about $2,000 upfront when you lease a vehicle. In certain situations it might be beneficial to pay nothing upfront and include all of your fees into your monthly lease payment. In the event that something goes wrong with the vehicle prior to the expiration of the term, at least the leasing company doesn't own an enormous amount of cash. 2. Do not negotiate the lease agreement. Several components of lease agreements typically include the: Buyout price: The amount you'll pay the dealer in case you decide to buy the car when the lease is over. Disposition cost: This fee covers the dealer's costs to prepare the vehicle for sale once it's turned in. Gross capitalized cost: Also referred to as the price of sale for the vehicle which affects the monthly payment and the buyout price. Mileage allowance: Leases come with the 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 when the lease ends. Money factor: The cost you pay to lease the vehicle -- in essence, the interest rate. Failing to negotiate these figures could leave hundreds or thousands of dollars in savings on the table. 3. Not buying gap insurance If you own a car leased and you want to pay for . The "gap" is the difference between the balance you owe on the lease and the car's value. If your contract says that at the expiration of the lease, you will be able to purchase your car at $13,000. If you crash and total the car before the lease is up, your insurance company will calculate the value of the vehicle's current market value and transfer that value to the dealership that is the owner of the vehicle. If the insurance company claims that the market value is only $9,000. In this case you'll likely need to pay $4,000 out of pocket to pay for the difference between the lease's residual value and its actual market value, unless you are covered by gap insurance. The gap coverage will cover the difference. A lot of leases offer gap insurance. The dealer may offer to offer you gap insurance, however, you could choose a lower-cost policy with a traditional insurance company. However, the protection is well worth the small investment. 4. Don't underestimate the amount of miles you'll travel in a car To avoid extra costs, be aware of your driving habits prior to renting the vehicle. Consider your daily commute and how often you make long journeys. You could ask for an increase in the mileage limit when you're certain you'll be driving more miles than your agreement allows. However, that will probably increase the amount you pay each month because additional miles will cause a greater amount of depreciation. It's common for leasing contracts to include annual mileage limit of 10,000, 12,000 and 15,000 miles. If you go over those limits, you could be charged as much as 30 cents for each additional mile when you reach the end of the lease. For example, if you exceed the mileage limit by 5 miles you might end up owing an extra $1,500 -- or 30 cents per mile -- when you turn the car in at the close term. 5. The car is not maintained properly If the car you own has damage that goes beyond normal wear and tear, you could be on the hook for extra charges when it's time to take it back to the seller. If a car has an injury but the damage is less than the width on the outside of the driver's license or business card, many companies will view it as normal use and won't issue a fine. If the leasing company considers any damage to be too severe, it can charge additional fees. The term "normal use" can vary from dealer to dealership. Your lender will check the car before you turn into them and check for scratches and dents on the body and the wheels, damage to the windshield and windows as well as excessive wear on the tires, and scratches or stains on the interior upholstery. Don't assume that your inspector is lenient. 6. Leasing a car for too long Make sure that the lease term matches or is shorter than the warranty period of the vehicle. Warranties differ from manufacturer manufacturer, but they typically last for 3,600 miles for three years depending on what occurs first. If you keep the car for longer than the warranty time it may be necessary to look into the possibility of an extended warranty. If not, you'll be liable for the cost of maintenance and repairs for a vehicle that you do not own while still paying monthly lease payment. It's best to purchase the car if you're planning to lease it for an extended period, says Barbara Terry, a Texas-based automotive expert and columnist. "If the driver owns the car it would be his responsibility to buy the vehicle and pay for maintenance however, he can continue to drive it for a number of years without having to worry about a mandatory monthly rental payment," Terry says. Use an to figure out whether leasing or buying the car you want can save you in the long run. 7. Don't think about leasing-specific insurance requirements ever financed a car, you may already know that the majority of lenders require you to have collision and comprehensive insurance. If you're the first to do so , however, you might not know that you could also be required to increase your liability limits. The liability coverage section of your auto policy pays for damages to property and medical expenses when you're responsible for an accident. In addition to collision and comprehensive the majority of leasing companies require you to have the liability limit of $100,000 per person and $300,000 per accident for , along with $50,000 for . This may be noted as 100/300/50 in your policy document. Based on your current liability coverage, these limits may increase your insurance premiums, which could be more than what you're used too after adding your newly leased vehicle. To avoid unexpected costs it's a good idea to obtain an insurance quote for the car you're considering prior to signing the"dotted line. What is the best way to lease a car? A car lease is a method to "borrow" the car instead of purchasing a used or brand new car. It typically comes with an agreement for three or four years and a comprehensive contract, therefore there are many factors to consider before signing off on this long-term commitment. The option of leasing instead of buying a vehicle is a fantastic way to own a car with the latest technologies and features at a lower amount of money each month. If you're ready to lease a car, you should follow these steps: Do your homework. You can lease just about every kind of vehicle that has been made in recent years. You will want to narrow down the kind and brand you are most interested in before factoring in how the price can be incorporated into your budget. To , pay close attention to your habits of driving and how the car can fit into your daily routine. Bankrate tip
When planning your budget, you should pay a small sum before leaving the lot in order to pay taxes and charges. In addition, if you want to secure lower monthly payments throughout the lease, you can look into putting a larger amount down.
Visit dealers Then, go to some dealers and take some test drives. It will help find what exactly you're searching for. You may want to call ahead to determine the current availability and whether test drives are currently allowed. Bankrate tip
If you go to dealer locations 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 more affordable than purchasing make sure you are prepared for an increase in competition.
You can negotiate the lease terms Pretty much everything is to be discussed during the lease process. And the negotiation phase is the only opportunity you'll have to obtain the benefits you desire in writing. For the top negotiator take a look at the current price on sites such as Kelley Blue Book and remember to negotiate more than just price. Bankrate tip
A good lease deal is one that leaves you paying as little throughout the term of the loan as possible -- initial down payment included. If negotiation intimidates you consider bringing a trusted partner to help you navigate the difficult conversation. Be aware that could make securing an improved lease more difficult.
Compare deals Take advantage of online resources and compare the offers that you can get to find the best price. Check out a few dealerships before making a decision on the purchase of your car. Be aware of the monthly cost of the mileage cap, purchase price, the money factor and the capitalized cost of your vehicle. Also, take a look at the costs the leasing company is charging, which includes the acquisition fee, the disposition fee, and early termination fee to see if it's comparable to similar offerings. Don't forget to ask about the due amount at the time of signing. Bankrate tip
When comparing lease options take a look at the fine print and the vehicle itself. While driving for a test drive take note of the way the car drives and whether it fits with your lifestyle.
Maintain the car during your lease . Keep in mind that you have to return the vehicle at the end of the lease term. If it's in poor condition, you might have to pay additional charges. Before leasing a car, ask about the guidelines on the lease-end condition. These guidelines outline the kinds of damage you would have to pay for before you return the car. Bankrate tip
If your car is severely damaged, drivers can expect to be charged at market-rate prices for repairs. At the , you'll have two choices. You can either turn in your vehicle to the dealer, buy the car , or lease a new vehicle.
Leasing a car vs. buying a car . Consider your needs when deciding if to . Reflect on the amount of miles you travel each year. If you are a frequent driver it could be costly to lease. Consider the benefits and drawbacks of each approach. Benefits of leasing
Cons of leasing
Because you are not paying for the whole 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 car will no longer be yours anymore. You'll need to find another vehicle or purchase out your leased vehicle.
If owning a more modern or high-end automobile is important to you, then your monthly lease payments will be more affordable than putting down a large amount to purchase it.
There is also the possibility of having to pay a vehicle turn-in fee at the conclusion 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 brand new vehicle. That can help save on ongoing maintenance costs.
The majority of leases have the option of a mileage allowance. if you drive more than the allowance, you'll have to pay huge per-mile fees.
The next step If leasing is right for you, make sure to do your research, compare and to ensure that you lease fits your driving habits and budget. Pay close attention to your monthly fees and clauses. To determine your monthly installment amount and the amount of your monthly payment, the dealer will evaluate the worth of the new vehicle versus it's residual value. As with all transactions involving financing, the better your credit score and the lower your interest rate.
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Authored by Points and Miles Expert Contributor Dan Miller is a former contributor for Bankrate. Dan wrote about loans home equity, loans and debt management in his writing. 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 cost of college and simplifying the complex world in student loans.
Student loans editor
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