Mistakes to avoid when leasing a car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content. We also allow you to conduct your own research and compare information at no cost – so that you can make financial decisions with confidence. Bankrate has agreements 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 site are from companies who pay us. This compensation may impact how and where products appear on this website, for example, for example, the order in which they may appear within the listing categories, except where prohibited by law. Our mortgage, home equity and other products that lend money to homeowners. But this compensation does affect the information we publish, or the reviews that appear on this website. We do not contain the universe of companies or financial offerings that could be available to you. Thomas Barwick/Getty Images

8 min read published January 11, 2023

Written 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 the management of debt in his writing. Edited by Chelsea Wing Edited by student loans editor Chelsea has been with Bankrate since the beginning of 2020. She is invested in helping students navigate the high costs of college and simplifying the complex world that are associated with student loans. The Bankrate promise

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We are compensated in exchange for placement of sponsored products andservices or by you clicking on certain hyperlinks on our site. So, this compensation can impact how, where and in what order items appear within listing categories in the event that they are not permitted by law for our mortgage home equity, mortgage and other products for home loans. Other factors, like our own proprietary website rules and whether a product is offered in your area or at your own personal credit score can also impact how and when products are featured on this site. Although we try to provide a wide range offers, Bankrate does not include details about each credit or financial products or services. It gives you a car to drive for a predetermined number of miles and months. It’s similar to leasing an apartment in lieu of buying a home. There’s no long-term commitment required, however you must be responsible for the cost. A monthly lease cost for a car is typically lower than purchasing it through an . Drivers can save on average $138 for each month as per 4th quarter 2022. However, there are downsides to be aware of. Seven mistakes to avoid when leasing a car Leasing could lower your monthly payments, but it can be costly if you do not pay attention to the details. 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 payment for new cars, however you may need to pay several thousand dollars upfront in order to secure that affordable payment. That money covers a portion of the lease upfront. If the car is destroyed or stolen in the first few months, you issuing company will be reimbursed for the value of the car, but the leasing company may not reimburse your down payment. You’d lose your vehicle, and the initial money you handed over to the leasing company would essentially disappear. It’s recommended you spend no more than around $2,000 upfront when leasing a car. In certain situations it might be beneficial to pay nothing upfront and then roll the entire fees into your monthly lease payment. In the event that something goes wrong with the vehicle prior to the expiration of the lease term, at least the leasing company won’t be able to take an enormous amount of money. 2. Do not negotiate the lease agreement. The lease agreement has several elements that are usually included, such as the Buyout price: The amount you’ll have to pay the dealer in case you decide to buy the car when the lease expires. Disposition fee: This charge is used to pay the costs of the dealer for preparing your vehicle for sale once it’s been returned. Gross capitalized cost: Also known as the price of sale for the vehicle which affects the monthly payment and the purchase price. Allowance for miles: Leases have the number of miles that you are allowed to drive each year, and in violation of the limit will result in additional charges unless you purchase the vehicle when the lease expires. Money factor: The cost you’ll have to pay for leasing the car — basically the interest rate. In the event that you do not negotiate these figures, it could leave thousands or even hundreds of thousands in cost savings off the table. 3. Don’t buy gap insurance if you own a car leased and you want to be able to pay for . The “gap” is the difference between the balance you owe on the lease and the value of the car. If your contract says that at the end of the lease, you are able to purchase the car for $13,000. If you crash and total the car before the lease is up the insurance company will determine the car’s current market value and pay that amount to the dealer that is the owner of the vehicle. Suppose the insurance company says that the market value is $9,000. In that scenario, you’ll probably be required to pay $4,000 of pocket to pay for the difference between the lease contract’s residual value and the true market value, in the event that you don’t already have gap coverage. The gap coverage will cover the difference. A lot of leases offer gap insurance. The leasing company may sell you gap insurance, however, you could find a cheaper policy option by contacting a traditional insurance firm. However, the protection is worth the modest amount of money. 4. Don’t underestimate the amount of miles you’ll travel in a car To avoid extra charges, know your driving habits prior to leasing a vehicle. Think about your commute every day and the frequency of your long drives. You could ask for more mileage if you know you’ll probably be driving more miles than your agreement allows. But it’s likely to raise your monthly payments due to the fact that more miles lead to a higher depreciation. It’s typical for leasing contracts to include annual mileage limits of 12,000, 10,000 or 15,000 miles. If you exceed these mileage limits, you may be charged 30 cents per additional mile after the expiration period. If, for instance, you exceed the limit by 5 miles, you could end with a debt of $1,500 — at 30 cents per mile -at the time you turn your car in at close period. 5. Insufficient maintenance on the vehicle If the car you own has damage that goes beyond normal wear and wear and tear, you could end up charged additional charges when the time comes to return it at the dealership. If your car is damaged by scratches but the scratch is smaller than the size on the outside of the driver’s license or business cards, many companies will view it as normal use and won’t issue a fine. If the leasing firm considers any damage excessive, it could charge additional charges. The definition of normal use will differ from dealer dealership. Your lender will check the car before you turn it in , and will look for scrapes and dents on the body and wheels as well as damage to the windshield and windows and tire wear that is excessive as well as staining or tears in the interior upholstery. Do not assume that your inspection will be gentle. 6. If you lease a car for too long? Make sure that the lease period either coincides with or is less than the warranty period of the vehicle. Warranties differ from manufacturer company, but generally last for 3,600 miles for three years whichever occurs first. If you intend to keep the vehicle for longer than the warranty period then you might need to think about an extended warranty. In the event that you don’t, you may be liable for the cost of maintenance and repairs for a car you don’t have while paying monthly lease payment. It’s best to purchase the vehicle if you plan to lease it for a long time, according to Barbara Terry, a Texas-based auto specialist and columnist. “If the driver owns the vehicle, he’d have to pay for the vehicle and maintain it however, he can remain driving the car for several years without having to worry about a mandatory monthly lease cost,” Terry says. Utilize an app to determine whether buying or leasing a car can save you cash over the long term. 7. Don’t think about leasing-specific insurance requirements previously financed a car and you’re aware that all lenders require that you carry comprehensive and collision. If you’re making your first attempt , however, you might not be aware that you might also need to increase your liability limits. The liability coverage part of your insurance policy covers for damages to property and medical expenses when you’re responsible for an accident. In addition to collision and comprehensive leasing, the majority of leasing companies require you to maintain minimum liability limits of $100,000 per person and $300,000 per accident for , along with $50,000 for . You may see this denoted as 100/300/50 on your policy document. Based on the current liability insurance, these limits may increase your coverage, which could already be greater than what you’re used to prior to having leased your vehicle. To avoid surprises, you may want to obtain an insurance quote for the car you’re considering before you sign the dotted line. What is the best way to lease a car? A car lease allows you to “borrow” an automobile instead of buying a new or used car. It usually comes with the option of a four-year or three-year agreement and an in-depth , so there are many aspects to take into consideration before signing off on the long-term contract. A lease option instead of buying a vehicle can be a great way to own a car with the latest technology and features for less amount of money each month. If you’re looking to lease a car, make sure you follow these steps: Perform your research You can lease almost any kind of car released in recent model years. It is important to narrow down the kind and brand you are interested in first while factoring in how the price can be incorporated into your budget. To , pay close attention to your driving habits and how the vehicle can fit into your daily routine. Bankrate tip

If you are budgeting, plan to make a small payment before you drive off the lot in order to pay tax and fees. More than that, if you wish to secure lower monthly payments over the course of the lease, you can think about putting down additional cash.

Visit dealers Then, go to some dealers and take the opportunity to test drive. It will help determine what you’re looking for. You may want to call ahead to determine what’s available and if tests are allowed at the moment. Bankrate tip

If you go to dealer locations keep in mind that you might receive higher rates. You haven’t left the leasing market undisturbed and, even though it is still believed to be less expensive than buying be prepared for the possibility of competition.

You can negotiate the terms of your lease It is pretty much all available during the leasing process. The negotiation stage is the only opportunity you will have to get the benefits you’d like to see in writing. If you want to be the most effective 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 deal is one that will leave you with as little cost throughout the term of the loan as you can- an initial down payment is included. If negotiations are a challenge for you consider bringing a trusted partner to handle the hard discussion. Be aware that could make securing an improved lease more difficult.

Compare offers Make use of online resources and evaluate the offers you’re offered to ensure you get the best price. Visit several dealerships before you sign off on your car. Be aware of the monthly price, mileage cap, purchase price, money factor and the capitalized cost of your vehicle. Be sure to look over the charges the lender is charging, which includes the acquisition fee, disposition fee, and early termination fees to see if it’s comparable to other similar options. Don’t forget to ask about the payment due when you sign the contract. Tips for banks

When comparing lease offers, look at the fine print as well as the car itself. While driving for a test drive be sure to observe how the vehicle drives and if it will fit into your lifestyle.

Maintain the car during the lease. Remember that you must turn in the car at the end of the lease period. If the car is not in good condition, you might have to pay additional charges. When you lease a vehicle inquire about the rules on the lease’s end-of-lease conditions. These guidelines outline the kinds of damages you’ll have to cover prior to return the car. Tips for Bankrate

If the vehicle is seriously damaged, drivers will be charged at market-rate prices for repairs. If you’re in this situation , you’ll have several options. You can either turn in your car for sale, buy the car or lease a brand new car.

Leasing a car vs. buying a car Consider your priorities when deciding whether to . Consider the amount of miles you travel each year. If you drive a lot it could be costly to lease. Think about the pros and cons of each approach. The advantages of leasing

The cons of leasing

Because you are not paying for the full value of the car, you will usually have smaller monthly payments.

After the expiration of leasing, your car is no longer yours. You’ll have to search for a new car or buy out your leased vehicle.

If driving a newer or luxury automobile is important to you, your monthly lease payment will be less expensive than having a huge down purchase.

Additionally, you may be required to pay a car turn-in charge at the end of your lease if do not lease another vehicle from the dealer.

With a car lease generally, you get an entirely new vehicle. That can help save on ongoing maintenance costs.

The majority of leases include an allowance for mileage — if you drive more than the allotted amount, you’ll be charged massive per-mile costs.

The next step If leasing is the right choice for you, you must do your homework, shop around and to ensure that you get a lease that fits your driving habits and budget. Pay attention to your monthly fees and terms and conditions. To determine your monthly installment amount and the amount of your monthly payment, the dealer will evaluate the worth of the new car in comparison to the residual worth. Like with any transaction involving financing, the higher your credit score and 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 was a writer for Bankrate who covered loans, home equity as well as debt-management in his writing. Edited by Chelsea Wing Edited by Student loans editor Chelsea has been working at Bankrate since the beginning of 2020. She’s committed to helping students navigate the high costs of college and breaking down the complexities in student loans.

Student loans editor

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