You can use an automobile for a set number of miles and months when you lease it. It’s like renting an apartment rather than purchasing a home. Although there isn’t as much of a long-term commitment, there are still costs.
Leasing a car has a typically cheaper monthly cost than purchasing one with an auto loan. According to Experian’s State of the Automotive Finance Market report for the fourth quarter of 2023, drivers save an average of $206 every month on their payments. But there are drawbacks to be mindful of.
Top 7 things not to do while Leasing a Car
Although leasing can result in lower payments, if you don’t read the fine print, it can become very expensive. When it comes to leasing your next car, steer clear of these five typical blunders.
1. Making Excessive Upfront Payments
On new cars, car salespeople promote low monthly lease payments; but, to achieve that affordable rate, you might need to pay several thousand dollars up front. A portion of the lease is paid in advance using that money.
Your insurance company will pay the leasing company back for the car’s worth if it is stolen or totaled within the first few months of ownership, but the leasing company is unlikely to return your down payment. That down payment you gave the leasing firm would almost vanish, and you would be left without a car.
It is advised that when leasing an automobile, you should not pay more than roughly $2,000 in advance. It might make sense in some circumstances to pay nothing up front and include all of your fees in your monthly lease payment.
At least the lease company won’t have a sizable portion of your money if something were to happen to the car before the conclusion of the term.
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2. Not haggling over the terms of the Lease
Lease agreements frequently contain a number of negotiable clauses, such as the following:
- Buyout price: The sum you have to pay the dealer if you decide to buy the car at the end of the lease.
- Disposition fee: This amount pays the dealer’s expenses related to getting the car ready for sale after it is handed in.
- Total capitalized cost (GCC): This amount, which is also referred to as the car’s sales price, affects both the buyout price and the monthly payment.
- Mileage allowance: Leases have a ceiling on the total number of miles you can drive each year. If you go over this limit, you’ll pay more unless you buy the car when the lease expires.
- Financial factor: The cost of leasing the car, or interest rate, in essence.
You can be passing up cost savings of several hundred or thousands of dollars if you don’t negotiate these numbers.
4. Refusing to purchase Gap Insurance
Gap insurance is something you should buy if you drive a rented vehicle. The term “gap” describes the discrepancy between the remaining balance on your lease and the car’s market worth.
Assume your lease agreement allows you to purchase the vehicle for $13,000 at the conclusion of the term. Your insurance provider will calculate the car’s current market value and compensate the dealership, who owns the vehicle, if you total the vehicle before the lease expires.
Let’s imagine the insurance provider claims there is only a $9,000 market value. If that’s the case, unless you have gap insurance, you’ll likely have to pay $4,000 out of cash to cover the difference between the residual value stated in the lease and the genuine market value. The difference will be covered by the gap coverage.
Gap insurance is often included in leases. Although the dealer might try to sell you gap insurance, you might be able to locate a more affordable solution with a conventional insurance provider. In any case, the coverage is well worth the nominal outlay.
4. Underestimating the amount of kilometers you will drive a vehicle
Before renting a car, be aware of your driving style to prevent additional fees. Think about your long-distance travel frequency and your daily commute. If you anticipate driving more kilometers than what the agreement permits, you could request a greater mileage cap. However, since more miles equals more depreciation, that will likely result in an increase in your monthly payment.
Lease agreements sometimes include yearly mileage caps of 10,000, 12,000, or 15,000 miles. At the conclusion of the lease, you may be charged up to 30 cents per extra mile if you go above the allotted miles.
For instance, if you drive the car more than the allotted 5,000 miles, you might be responsible for an additional $1,500 at the conclusion of the lease, calculated at 30 cents per mile.
5. Not giving the vehicle regular maintenance
When it comes time to return your automobile to the dealer, you might have to pay extra if the damage exceeds standard wear and tear.
Many firms may view a scratch on an automobile as normal use and likely won’t levy a penalty if the mark is smaller than the margin of a business card or driver’s license. The lease firm may impose additional costs if it determines that any damage is excessive.
Dealer to dealer differences may exist in how normal use is defined. Before you return the vehicle, your lessor will check it over for flaws including excessive tire wear, tears or stains in the inside upholstery, damage to the windshield and windows, and dents and scrapes on the body and wheels. You should not expect your inspector to be forgiving.
6. Excessive Car Leasing
Verify if the lease duration is longer or shorter than the warranty period for the vehicle. Although warranties differ from manufacturer to manufacturer, they normally have a maximum duration of three years or three thousand miles, whichever comes first.
You might need to think about getting an extended warranty if you want to maintain the automobile after the warranty expires. If not, you can still be required to make the monthly lease payments while bearing the expense of upkeep and repairs for a vehicle that you do not own.
If you intend to lease the vehicle for a long time, it’s generally best to buy the vehicle, advises Texas-based columnist and automotive expert Barbara Terry.
“The driver could drive the car for several years without worrying about a required monthly lease payment if he owned the car,” Terry adds. “He would have to pay for the car and pay for maintenance.”
7. Ignoring the insurance obligations unique to a lease
If you’ve ever taken out a loan to buy a car, you probably already know that most lenders want comprehensive and collision insurance. However, you might not be aware that you could also need to raise your liability limits if this is your first time getting insurance for a leased car.
If you are at fault in an accident, the liability coverage element of your motor policy covers the other party’s medical costs and property damage. Most leasing firms require you to have liability limits of at least $100,000 per person and $300,000 per accident for bodily injury, along with $50,000 for property damage, in addition to comprehensive and collision insurance. This can be indicated on your policy papers as 100/300/50.
How to Rent a vehicle
Rather than purchasing a new or used automobile, you can “borrow” a car with a car lease. There are a lot of things to think about before committing to this long-term arrangement, which usually includes an extensive agreement and a three- or four-year contract.
Driving a newer car with the newest features and technology for less money each month can be achieved by opting to lease rather than buy. When you’re prepared to rent a vehicle, take these actions:
