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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 smarter financial decisions by providing you with interactive financial calculators and tools that provide objective and original content, by enabling you to conduct your own research and compare data for free – so that you can make sound financial decisions. Bankrate has partnerships with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website come from companies who pay us. This compensation could affect how and when products are featured on this website, for example, for example, the order in which they appear in the listing categories in the event that they are not permitted by law for our mortgage, home equity and other home lending products. This compensation, however, does not influence the information we publish, or the reviews you see on this site. We do not cover the vast array of companies or financial offers that may be accessible to you.
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6 min read published September 30 2022
Written by Allison Martin Written by
Allison Martin’s work started over 10 years ago as a digital media strategist. She’s been published in several leading financial outlets including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.
Editor: Helen Wilbers Edited by
Helen Wilbers has been editing for Bankrate since late 2022. He believes in the clarity of his reporting, which helps readers successfully land deals and make the best choices for their finances. He specializes in auto and small business loans.
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The leasing of a car allows you to take a car on lease for a period of time without having to buy it. It can be a great way to get a new set of wheels without having to commit financially. It’s particularly beneficial for drivers who travel under 15,000 miles each year and won’t risk mileage overages. However, leasing can be difficult. For the best price it is best to prepare yourself with a few questions. 10 questions to ask before leasing a car If you’re contemplating leasing , don’t jump at the first deal you come across. Set yourself up for success by first asking these questions. 1. What is the total amount to be paid when I sign the lease? Before you sign a lease you must receive a comprehensive written description of all the fees you must or may have to pay. In the beginning, you may have to pay a security deposit and title fees, a reduced capitalized cost and monthly installments due at signing as well as registration costs. Knowing the amount due when signing the lease can help you avoid overspending. Plus, knowing the price breakdown can allow you negotiate more effectively. What you should take away from this is
The amount you pay on is typically higher than the sticker price you were enticed by, so ask for an estimate of the fees first.
2. How long will the lease last? A leasing firm will inform you the number of payments that the lease covers as well as how much each installment will be and when the payments will be due. The most common lease terms are 24, 36, 48 and 60 months, but you may also find unusual terms, like 39 months. The odd-month deals are intended to confuse you. If you are looking at leasing options, be aware that a lease with a longer term offers lower monthly payments, but you will . What is the most important takeaway
Consider your options prior to signing a lease agreement and know exactly how your contract will impact your monthly payment.
3. What kind of lease am I signing and what happens after it ends? There are two kinds of leases: open-end and closed-end. In a closed-end lease, the leasing company decides on a total price basing on their estimate of the value depreciated by the vehicle. Even if your vehicle depreciates more than anticipated during a closed-end lease, the only extra costs you are responsible for is the extra mileage and wear-and-tear fees. It is by far the most common type of lease. If you sign an open-end or financial lease you have to cover the difference between the residual value and its actual price at the expiration of the lease. If the car depreciates more than you anticipated, you could have to pay a substantial amount at the end term. In both cases, read the fine print to ensure you don’t get caught off guard by any additional end-of-lease charges. Key takeaway
Knowing what type of lease you’re signing helps you plan better for your payments.
4. Can I buy the car at the close of the lease? If you want to , you may have an option to purchase it at 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 retail value of the vehicle to find out if you’re getting an excellent bargain. Also, evaluate the car’s condition to find out whether it’s in good condition and hasn’t depreciated significantly. You may find that buying out isn’t worth it unless you’re dealing with significant wear and tear costs or fines for exceeding the limit on mileage. What’s the most important lesson to take away
The lender may allow you to purchase your lease when the expiration date comes around however, you must run the numbers to verify that it makes financial sense.
5. Is the value residual of the car? A vehicle’s residual value is the amount it’s expected to have at time of lease. The leasing companies decide on their residual values, though you can get an estimate of . Knowing this number is helpful because it is a key element in determining your monthly payments. The greater the value of residual compared to the car’s original cost, the less your monthly installment. Furthermore, some automakers and lessors subsidize residual values in order way to make your monthly payments more affordable. If, for instance, your car is valued at $20,000 and should be worth $15,000 by the end of the lease, you’ll pay a lower payment than if you choose an $20,000 vehicle that is expected to sell for $10,000. In the second situation the lessor must recover a higher percentage of the car’s value and therefore will charge you more. Important takeaway
Knowing a vehicle’s residual value can help you figure out the kind of vehicle and kind of financing is the best for you.
6. Do you expect a wear-and-tear evaluation? require your lessor to tell you if and the method by which wear and tear is assessed upon returning the vehicle. When you are done with your lease, your car will be inspected for any damage on the exterior, such as scratches, dents and windshield cracks, and internal damage such as the presence of stains. You will be charged for any damage that is excessive however you will not have to pay to have the car inspected. The law also states that wear-and-tear standards should be reasonable. The standards are based on the number of miles you traveled and the extent of damage to your vehicle. If your car has minor damage, paying for the repairs before you make your assessment could make sense. The most important thing to remember
Knowing the way wear and tear is evaluated will allow you to prepare for any payments at the end of lease.
7. What is the”money factor? The “money factor” refers to the total amount you’ll be charged in finance fees for the car you’ve leased. It’s the same as the interest rate you’d pay on a new car. It’s usually represented in the small decimal. Then, multiplying it by 2,400 will show the annual percentage rate you’re paying for the lease. To illustrate, if accepted for a lease that has a money factor of .0030, it’s equivalent to the interest of 7.2 percent. Your credit score has a significant impact on the cash factor, therefore, before heading into the leasing office. You are not able to discuss this number since lenders typically determine the number. It is the most important lesson to take away
A money factor isn’t the identical to an APR however, it will determine the amount you’ll have to pay on top of your lease amount.
8. What is the lease mileage allowance , and what happens if I go over it? A lease mileage allowance refers to the number of miles you may drive without facing additional charges. Leases typically allow either 12,000 or 15,000 miles prior to when fees kick in. Extra mileage charges vary from 10 to 25 cents per mile. This can quickly add up. Know your allowance for mileage and anticipate your driving habits throughout your lease. Any lengthy road trip could cost you. While the mileage allowance is often a negotiable amount, changing it could impact your amount. Important takeaway
Exceeding your lease mileage allowance is going to cost you.
9. What happens if I’m unable to pay my lease? While it is not a common practice to fall behind on lease payments, it is important to be aware of what might happen if you miss the payment. Typically, a default happens in the event that you don’t make three or more payments in consecutive days. Not paying your lease typically can negatively impact your credit score, but every lessor deals with this differently. A lot of companies offer grace periods, which you must inquire about prior to making a commitment to the contract. It is also advisable to ask about a worst case scenario in which you fail to pay. After a certain amount of time, the lender may, in many cases, demand an early termination fee. Before signing, you should know what that price would be. The most important thing to remember
All lessors handle default differently Therefore, you should inquire ahead of time to know what penalties could occur.
10. Is the lease able to be extended? It is possible to extend your lease by some months at the same price, though many lessors are limited. Even if you’re not certain whether you will need to extend your lease, ask whether extending it will change the terms of the initial lease, or if it could result in additional cost. Knowing upfront the costs involved can assist you in planning your budget the time when your lease is due to expire. Along with the possibility of lease extensions, you should inquire about the termination fee. The company must inform the customer of what conditions the leasing company may require the return of the vehicle or can change conditions of the agreement. The most important thing to remember is
Asking about lease extensions ahead of time will ensure that you don’t get caught off guard by additional costs if you need longer time after the expiration of the lease.
Final considerations to keep in mind when leasing vehicles is a great option for those looking to test drive the most modern vehicles available without investing in buying a car. Here are some pros and cons to bear in mind while . Benefits of leasing can be affordable. Drivers who don’t drive much and don’t need to go over the mileage limit of a lease might find leasing to be a cheaper option than buying the new car. You can get a new car every few years. If you are a fan of driving latest vehicles with the newest technology, leasing allows you to upgrade your vehicle every couple of years when your contract ends. Cons Leasing involves restrictions you don’t have when buying a car. When leasing a vehicle, you’ll be subject to limits on the amount of miles driven. It’s also essential to keep the vehicle in good working order to avoid paying additional charges at the time the lease expires. You don’t build equity when leasing a vehicle. If you switch between leases you’re not creating any equity in your car. Before you visit an auto dealer to inquire about leasing questions, think about your driving habits to determine whether leasing is the best option for you. A is a great starting point to see potential savings. The next steps are leasing a car. is a significant commitment however, it’s a good investment If you know what you’re getting into. Be prepared. Ask the right questions, and then read the fine print of a lease agreement to secure the best deal possible. Learn more
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Written by
Allison Martin’s work began over 10 years prior to that as a digital content strategist. 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 since late 2022. He values transparent reporting that allows readers to easily get deals and make best choices for their finances. He specializes in small business and auto loans.
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