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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 offering you interactive financial calculators and tools, publishing original and objective content. This allows users to conduct research and compare data for free - so that you can make sound financial decisions. Bankrate has partnerships with issuers, including 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 are provided by companies who pay us. This compensation can affect the way and where products appear on the site, such as such things as the order in which they be listed within the categories of listing and other categories, unless prohibited by law. Our loan products, such as mortgages and home equity and other products for home loans. However, this compensation will affect the content we publish or the reviews appear on this website. We do not cover the universe of companies or financial deals that may be accessible to you.
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6 minutes 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 published in numerous prestigious financial outlets 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 the end of 2022. He is a fan of clear reporting that helps readers easily land deals and make the most appropriate choices regarding their finances. He specializes in small and auto loans.
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Leasing a car lets you take a car on lease for a few years without the obligation to purchase it. It can be a great option to purchase a new car without fully committing to a financial commitment. It's particularly beneficial for drivers who drive less than 15,000 miles each year and won't risk mileage overages. However, leasing can be a bit complicated. For the best price you must prepare yourself with a few questions. Ten questions to ask prior to leasing a car If you're thinking of it, don't take the first offer you see. Make sure you are prepared by first asking these questions. 1. What is the due amount upon signing the lease? When you sign a lease, you should receive a detailed written list of all you have to pay. Upfront payments could include a security deposit, title fees, capitalized cost reduction and monthly installments due at the time of signing, and registration fees. Knowing the amount due when signing the lease can help to avoid overspending. Additionally, knowing the cost breakdown can assist you to negotiate better. What you should take away from this is
The price you sign off on is typically higher than the sticker price that attracted you to it, so make sure you get the list of fees prior to signing.
2. What is the length of the lease? It is the leasing business that will inform you how many installments the lease will include as well as how much each installment will be and when the payments are due. The most popular lease terms are 24 36, 48, 36 and 60 months, however you can also find unusual terms, like 39 months. Some odd-month deals may be intended to make you confused. While looking over lease options, remember that a lease with a longer term offers smaller monthly payments, however you'll pay more . What is the most important takeaway
Be aware of your options prior to concluding a lease and be aware of how the lease term will affect the monthly installment.
3. What type of lease am I signing and what happens when it expires? There are two : close-end as well as open-end. In a closed-end lease, the leasing company sets a total price according to their estimation of the value depreciated by the vehicle. Even if your vehicle depreciates more than anticipated during an end-of-lease, the only costs you're accountable for are the excess mileage and wear-and-tear fees. It is by far the most common type of lease. In an open-end , or financial lease you have to pay the difference between the car's residual value and the actual value at the close of the lease. If the vehicle depreciates faster than expected, you may be charged a significant amount at the close of the lease. In both cases, be sure to read the fine print so you do not get surprised by any extra lease-end payments. Key takeaway
Knowing the type of lease you're entering into allows you to better plan for your lease payments.
4. What happens if I want to purchase the car at the end 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 option that is included in the lease contract. But before you , evaluate the residual value against the retail value of the vehicle to determine if you're getting a good deal. Also, look at the car's condition to find out whether it's in good working order and hasn't significantly depreciated. There's a chance that a buyout isn't worth the effort unless you're dealing with significant wear and tear fees or penalties for over the limit on mileage. The most important thing to remember is
The lessor may allow you to buy out your lease when the expiration date comes around however, you must run the numbers to ensure it is financially feasible.
5. What is the residual value of the vehicle? A vehicle's residual value is the amount that it is believed to be at at time of lease. Leasing companies determine the residual value, however you can find an estimate of . Knowing this number is helpful because it is a key element when determining your monthly installments. The greater the value of residual in comparison to the vehicle's initial price, the lower your monthly payment. Additionally, certain automakers and lessors subsidize residual values in order to make the monthly cost more affordable. For example, if your car is valued at $20k and will be worth $15,000 at the close of the lease you'll pay a lower payment than if you select the $20,000 car that will have a value of $10,000. In the second situation the lessor must recover a higher portion of the value of the vehicle and thus will be charging you more. Key takeaway
Knowing the residual value of a car can help you figure out the type of car and which kind of financing is right for you.
6. Do you expect a wear-and-tear evaluation? You should ask your lender to inform you whether and how wear and tear will be evaluated upon returning the vehicle. When you are done with your lease, the vehicle will be inspected for damage to the exterior such as scratches, dents, and windshield cracks, as well as interior damage like staining. The car will be assessed for any excessive damage however you will not have to pay fees for an inspection. The law also says that standards for wear and tear should be reasonable. The standards are based on the number of miles you traveled as well as any damage that was done to the vehicle. If your vehicle is in the process of undergoing minor damage, paying for repairs prior to your assessment might prove worthwhile. The most important thing to remember
Knowing how wear and tear is determined will prepare you for any payments at the end of lease.
7. What is the"money factor? The "money factor" represents the total amount you'll pay in finance charges for the leased vehicle. It's similar to the interest rate you'd pay on a new car. It's usually represented in a small decimal. Multiplying it by 2,400 will give you the annual percentage rate you're paying for the lease. To illustrate, if approved for a lease with an amount of .0030 is equivalent to the interest that is 7.2 percent. Your credit score heavily influences the factor of money, so you should consider this before heading into the leasing office. You are not able to bargain on this amount since lending institutions typically set the number. The most important thing to remember is
A money factor is not the equivalent to an APR, however, it will decide how much you'll be charged in addition to your lease price.
8. What is the lease mileage allowance and what happens when I exceed it? The lease mileage allowance is the number of miles you can drive without having to pay any additional costs. Leases usually allow either 12,000 or 15,000 miles before fees start to apply. The fees for excess mileage can vary between 10 and 25 cents for each mile, which will quickly accumulate. Know your allowance for mileage and anticipate the driving habits you will be using during your lease. Any long-distance road trips could cost you. The miles allowance is usually a negotiated amount, changing it could impact your amount. Key takeaway
The excess mileage you have allowed for your lease will cost you.
9. What happens if I can't pay my lease? Although few plan to fall in debt on lease payments, it is important to understand what could happen if you miss the payment. Typically, a default will occur if you fail to make more than three payments in consecutive days. The inability to pay your lease usually leads to and negatively affects your credit score, but every lessor handles this situation differently. There are many companies that offer grace periods, which you should inquire about prior to you sign the lease. It is also wise to ask about a worst-case event in which you are not able to pay. After a certain amount of time, your lender may, in many cases, charge you an early cancellation fee. Before signing, find out what that price would be. Key takeaway
All lessors handle default differently So, make sure to inquire beforehand what penalties could occur.
10. Can the lease be extended? You can usually request to extend the lease by some months at the same price, though most lessors have a limit. Even if you are unsure whether you'll need for an extension of your lease ask whether the extension will alter the terms of the original lease or bring potential new cost. Knowing upfront the costs involved can assist you in planning your budget the time when your lease is due to expire. In addition to possible lease extensions, ask about the termination fee. The company must inform the customer of what conditions the leasing company may demand their vehicle back or can change the terms of the contract. It is a key takeaway
Ahead of time will ensure that you aren't blindsided with additional costs if you need more time at the end of your lease.
Last considerations to bear in mind prior to leasing vehicles is a great option for drivers interested in driving the most modern vehicles available without the expense of buying the car. Here are a few pros and cons to bear in mind while . Pros Leasing can be cost-effective. People who don't travel a lot and therefore don't have to exceed the limits of their lease's mileage could find leasing to be a more cost-effective option than purchasing the new car. You can purchase a brand new car every few years. If you like driving the latest vehicles with the newest technology, leasing allows you to upgrade your vehicle every couple of years once your contract is over. The cons of leasing are that it comes with limitations you don't have when buying a car. When you lease a car you'll have to limit the miles traveled. It's even more important to keep the car in good condition to avoid paying additional charges when the contract ends. There is no way to build equity when you lease a vehicle. If you jump from lease to lease, you won't be building any equity in your vehicle. Before you visit the dealer to ask leasing questions, reflect on your driving habits and decide whether leasing is the right choice for you. It's a good beginning point to evaluate possible savings. The next steps are leasing a car. is a big commitment, however, it's a good investment when you are aware of what you're getting into. It's important to prepare. Be sure to ask the right questions and read the fine print of a lease agreement to ensure you get the most favorable deal. Learn more
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Written by
Allison Martin's work began over 10 years ago as a digital media strategist. Since then, she's been featured in a variety of top financial publications, 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 from late 2022. He is a fan of transparent reporting that allows readers to confidently land deals and make the most appropriate choices regarding their money. He is a specialist in small business and auto loans.
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