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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 offering you interactive tools and financial calculators as well as publishing unique and impartial content. This allows users to conduct research and compare information for free and help you make informed financial decisions. Bankrate has agreements with issuers such as, but not restricted 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 that compensate us. This compensation could affect how and when products are featured on this site, including such things as the sequence in which they appear in the listing categories, except where prohibited by law for our loan products, such as mortgages and home equity, and other products for home loans. This compensation, however, does not influence the content we publish or the reviews that you see on this site. We do not contain the entire universe of businesses or financial offers that may be available to you.
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6 minutes read. Published September 30, 2022
Written by Allison Martin Written by
Allison Martin’s work began over 10 years prior to that as a digital content strategist. Since then, she’s been published in several leading financial publications such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.
Editor: Helen Wilbers Edited by
Helen Wilbers has been editing for Bankrate from late 2022. He believes in clear reporting that helps readers confidently find deals and make the best decisions for their financials. He is an expert in small and auto loans.
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A car lease lets you lease a car for a period of time without the obligation to purchase it. It’s an excellent way to get a new car without fully committing to a financial commitment. It’s particularly beneficial for drivers who drive under 15,000 miles per year, and who don’t want to risk overages. But leasing can be complicated. For the best price it is best to prepare yourself with some questions. Ten questions to ask prior to leasing a car If you’re thinking of not settling for the first offer you see. Set yourself up for success by asking these questions first. 1. What is the amount due upon signing the lease? Before you sign a lease you should receive a detailed written description of all the fees you have to pay. In the beginning, you may have to pay security deposits, title fees, capitalized cost reduction, monthly payments paid at signing or registration fee. Knowing the amount due when signing the lease can help you avoid spending too much. Also, knowing the cost breakdown can assist you negotiate more effectively. What you should take away from this is
The amount you pay on will typically be more costly than the price that enticed you, so ask for a list of fees first.
2. How long will the lease last? The leasing company will inform you the number of payments that the lease covers as well as how much each installment will be and when the payment is due. The most common lease terms are 24 36, 48, and 60 months — however you can also find strange terms, such as 39 months. Some odd-month deals may be designed to make it difficult for you to understand. While looking over lease options, remember that a longer lease will provide lower monthly installments, but you will . What is the most important takeaway
Be aware of your options prior to signing a lease agreement and understand exactly how your duration will affect the monthly installment.
3. What kind of lease do I have to sign and what happens when it is over? There are two types: Open-ended and Closed-End. For a closed-end lease the leasing company sets a total price according to their estimation of the vehicle’s depreciated value. Even if your vehicle depreciates more than expected during a closed-end lease, the only costs you’re accountable for are the excess mileage as well as wear-and-tear costs. This is the most common type of lease. In an open-end or financing lease, the borrower have to cover an amount that is the sum of the car’s residual value and the actual value at the close period. If the car’s value decreases more than anticipated, you could have to pay a substantial amount at the end period. In both cases, be sure to read the fine print to ensure you are not surprised by additional lease charges. The most important thing to remember is
Knowing the type of lease you’re signing helps you better plan your lease payments.
4. Do I have the option of buying the vehicle at the expiration period of my 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 agreement. However, before making a purchase, you should compare the residual value to the value of the vehicle’s retail value to decide if you’re receiving a good bargain. Also, evaluate the car’s condition to assess whether it’s in good condition and hasn’t been significantly depreciated. It could be that buying out isn’t worth it unless you’re faced with steep wear and tear charges or penalties for over the mileage limit. The most important thing to remember is
The lessor may allow you to buy out your lease once the lease period ends However, you should do the numbers to confirm it makes financial sense.
5. Is the value residual of the vehicle? A vehicle’s residual value is the amount that it is expected to have at end of the lease. The leasing companies decide on the residual value, but you can obtain an estimate on . This number can be helpful as it’s an important element in determining the monthly payment. The greater the value of residual compared to the car’s original cost, the less your monthly payment. In addition, some manufacturers and lessors provide a subsidy to residual values in order to make the monthly cost less expensive. If, for instance, your car is valued at $20k and will be worth $15,000 by the expiration of the lease, you will have an amount that is lower than if you opt for a $20,000 car expected to be worth $10,000. In the second scenario, the lessor needs to recoup a larger proportion of the car’s worth and thus will be charging you more. The most important thing to remember is
Knowing the value of a vehicle’s residual will help you decide on the best kind of vehicle and kind of financing is right for you.
6. Do you expect a wear-and-tear assessment? require your lessor to tell you if and what method the wear and tear of your vehicle will be evaluated when you return the car. At the end of your lease, the car will be examined for exterior damage like scratches, dents and cracks, and internal damage such as staining. You will be charged for any damage that is excessive, though you won’t be charged fees for an inspection. The law also states that the wear and tear standards are to be reasonable. The standards are determined by the amount of miles driven and any damage done to your vehicle. If your car has minor damage, the cost of touch-ups before your assessment may be worth it. The most important thing to remember
Understanding the way wear and tear is evaluated will allow you to prepare for any end-of-lease payments.
7. What is the money factor? The «money factor» is the sum you’ll pay in finance charges for the vehicle you lease. 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 give you the annual percentage rate you are taking on for your lease. To illustrate, if granted a lease with an amount of .0030, it’s equivalent to an annual interest charge that is 7.2 percent. Your credit score has a significant impact on the factor of money, so you should consider this before you go to the leasing office. You can rarely discuss this number since lenders typically determine the number. It is the most important lesson to take away
A money factor isn’t the equivalent to an APR, however, it will determine how much you’ll pay in addition to your lease amount.
8. What is the lease mileage allowance and what happens when I exceed it? A lease mileage allowance refers to the amount of mileage you may drive without facing any additional costs. Leases typically allow either 12,000 or 15,000 miles prior to when fees kick in. Excess mileage fees can vary from 10 to 25 cents per mile. This can quickly add up. Understand your mileage allowance and try to anticipate your driving habits during your lease. Any long-distance road trips could cost you. The miles allowance can be negotiated number, changing it will have an impact on your lease cost. Important takeaway
The excess mileage you have allowed for your lease is going to cost you.
9. What happens if I’m unable to make a lease payment? While it is not a common practice to fall behind on their lease payments, it is important to understand what could occur if you fail to make the payment. Typically, a default happens in the event that you don’t make more than three payments in a row. Not paying your lease typically can negatively impact your credit score, however each lessor approaches this issue differently. A lot of companies offer grace periods that you should inquire about prior to making a commitment to the contract. It is also wise to ask about a worst-case scenario where you default. After a certain period of time, the lender may often demand an early termination fee. Before you sign, be sure to know what that price would be. Key takeaway
All lessors handle default differently Therefore, you should inquire beforehand what penalties can be expected.
10. Is the lease able to be extended? You can usually request to extend your lease by some months at the same cost, however most lessors have a limit. Even if you’re not certain whether you’ll have to extend your lease, inquire whether it would alter the terms of the initial lease, or if it could result in additional costs. Knowing upfront the costs involved can aid you in planning the time when your lease is due to expire. Along with potential lease extensions, inquire about the fees for termination. Companies must disclose under what circumstances they can demand their vehicle back or change the terms of the deal. It is a key takeaway
Ahead of time will ensure that you don’t get caught off guard by additional costs if you need more time at the end of the lease.
The final considerations to keep in mind when leasing an automobile can be a good choice for those who want to drive the latest models of vehicles without investing in buying a car. Here are some pros and cons to bear in mind when . Benefits of leasing can be affordable. Drivers who aren’t very active and therefore don’t have to exceed the limits of their lease’s mileage might 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 enjoy driving the most modern vehicles that feature the latest technology, leasing allows you to upgrade each few years when your contract ends. Cons Leasing involves restrictions which you can’t get when purchasing a car. When leasing a vehicle, you will face limits on the amount of miles driven. It is even more crucial to keep the car in good shape to avoid paying additional charges when the contract ends. There is no way to build equity when leasing a vehicle. If you jump between leases you’re not creating any equity in the vehicle. Before heading to an auto dealer to inquire about leasing questions, reflect on your driving habits and decide whether leasing is the best option for you. A is a great beginning point to evaluate possible savings. The next step is leasing a car. is a major commitment, but it can pay off when you are aware of the risks involved. It’s important to prepare. Ask the right questions, and then read the specifics of a lease agreement to ensure you get the most favorable deal. Learn more
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Written by
Allison Martin’s career began more than 10 years ago as a digital content strategist. Since then, she’s been published in several leading financial media outlets 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 is a fan of transparent reporting that allows readers to easily find deals and make the most informed decisions regarding their financial situation. He specializes in small business and auto loans.
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