But you should always read the fine print before signing a contract. Leasing a car can result in lower monthly payments, but it can be really expensive if you don’t know what you’re doing.
Car dealers advertise low monthly lease payments on new vehicles, but you’d probably have to pay several thousand dollars at the beginning of the term to get the low payments. That money is generally used to pay a portion of the car lease in advance.
If that happened, the insurance company would reimburse the leasing company for the value of the car, but the money you paid upfront would likely not be refunded. As a result, you’d be out of a car, despite having already paid a lot of money.
It’s recommended to pay no more than around $2,000 in advance when you lease a car. And in some cases, it may make more sense to put nothing down.
If you pay less in advance, your monthly payment would be higher. But you could take the prepayment cash and put it in an interest-bearing account instead.
After, you could use that money to help make the monthly lease payments. And if something happens to the vehicle before the end of the term, at least the leasing company wouldn’t have a big chunk of your money.
The value of any new car drops significantly after it’s driven off the lot — and leased cars are no exception. If you drive a leased car, it’s in your best interest to have gap insurance.
A “gap” refers to the difference in what you still owe on your lease, and how insurance companies value your car. If your leased car is stolen or totaled, the car insurance company makes a payment for their assessed value of the car. Their sum may not cover the amount that still remains on the lease.
Many leasing companies are able to advertise low monthly payments because they have low mileage limits, where you can drive only a number of miles per year.
It’s common for leasing contracts to have a driving maximum of 10,000 miles to 15,000 miles. If you exceed those limits, you could be charged an additional 10 cents to 30 cents per mile at the end of the lease.
So when it comes time to turn in the car, you could end up owing a substantial amount — on a car you’re no longer driving.
To avoid this extra fee, examine your driving habits before choosing to lease a car. If you know you’ll probably drive more miles than the agreement allows, you could ask for a higher limit.
If your car has damage that goes beyond normal wear and tear, you could be on the hook for additional fees when it’s time to return it to the dealer.
Generally, if a car has a scratch but the mark is less than the size of a driver’s license or business card, many companies may consider it normal use. They probably won’t charge a penalty. If the leasing company considers the damage excessive, they may charge additional fees.
The definition of normal use can vary from dealer to dealer. Don’t assume that your own lease servicers will be lenient. Before leasing a car, ask if there are any lease-end-condition guidelines. These guidelines determine types of damage you would have to pay for before you turn your car back in.
Most car-lease terms range from two to four years, though some can go longer. However, drivers who lease cars for too long could end up paying extra money in maintenance.
If you choose to lease a car, make sure the lease period either matches or is shorter than the car’s warranty period. Warranties vary from lender to lender, but on average they last up to three years or 36,000 miles, whichever comes first.
If you keep the car for longer than the warranty period, you may have to consider an extended warranty. Otherwise, you may be responsible for maintenance and repair costs — a tall order for a car you don’t own. And you’ll still be responsible for monthly leasing costs.