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Questions to ask before leasing a car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by offering you interactive tools and financial calculators as well as publishing unique and impartial content. This allows you to conduct your own research and compare data at no cost and help you make sound financial decisions. Bankrate has agreements with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site are from companies that compensate us. This compensation can affect the way and where products appear on this website, for example for instance, the order in which they may appear within the listing categories in the event that they are not permitted by law for our loans, mortgages, and other home loan products. This compensation, however, does have no impact on the information we publish, or the reviews that you read on this site. We do not include the universe of companies or financial offers that may be open to you.
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6 min read published September 30 2022
Written by Allison Martin Written by
Allison Martin's career began more than 10 years prior to that as a digital content strategist. Since then, she's been featured in a variety of top financial outlets including 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 the end of 2022. He is a fan of transparent reporting that allows readers to easily get deals and make best decisions for their financials. He specializes in small business and auto loans.
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The leasing of a car allows you to take a car on lease for a short period of time, without the need to purchase it. It can be a great way to get a new set of wheels without having to commit financially. It's especially beneficial for those who clock in less than 15,000 miles each 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. 10 questions to ask before leasing a car If you're contemplating leasing , don't jump at the first offer you see. Set yourself up for success by asking these questions first. 1. What is the total amount to be paid upon signing the lease? Before signing a lease, you will receive a thorough written statement of everything you have to pay. The upfront payments may include security deposits as well as title fees, reduced capitalized cost as well as monthly payments due at signing or registration fee. Knowing the amount due when signing off on the lease helps you avoid overspending. Also, knowing the cost breakdown of all can help you to negotiate better. The most important thing to remember
The price you sign off on usually is higher than the sticker price that enticed you to it, so make sure you get the list of fees prior to signing.
2. How long will the lease last? The leasing company will inform you the number of payments that the lease includes as well as how much each installment will be , and the time the payment is due. The most commonly used lease terms are 24 36, 48, and 60 months, however, you could also come across strange terms, such as 39 months. The odd-month deals are created to make it difficult for you to understand. When looking through the lease options, remember that a longer lease offers smaller monthly payments, however you'll pay more . Key takeaway
Be aware of your options prior to agreeing to a lease term and know exactly how your term will affect your monthly payment.
3. What kind of lease do I have to sign and what happens when it expires? There are two kinds of leases: open-end and closed-end. In a closed-end leasing agreement, the leasing company decides on a total price according to their estimation of the depreciated value of the vehicle. If your car depreciates more than expected during a closed-end lease, the only extra costs you are accountable for are the excess mileage and wear-and-tear charges. This is the most popular type of lease. In an open-end , or financing lease, the borrower will have to cover an amount that is the sum of the residual value and its actual value at the expiration period. If the car's value decreases more than anticipated, you could be charged a significant amount at the expiration of the lease. In both cases, be sure to read the fine print so you are not surprised by additional lease payments. The most important thing to remember is
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 expiration of the lease? If you'd like to then, you might have the option to buy it in the amount of the residual value, or purchase price option included in the lease contract. But before you , check the residual value against the car's retail value to decide if you're receiving an excellent deal. Also, evaluate the car's condition to assess whether it's in good working order and hasn't significantly depreciated. You may find that a buyout isn't worth the effort unless you're facing steep wear and tear fees or penalties for exceeding the limit on mileage. Key takeaway
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 makes financial sense.
5. What is the residual value of the car? A vehicle's residual value is the amount it's estimated to hold at the time of lease. Leasing companies determine what the value of residual is, though you can obtain an estimate of . Knowing this number is helpful as it's an important element when determining your monthly installments. The higher the residual value in comparison to the vehicle's initial cost, the lower your monthly payment. In addition, some automobile makers and lessors offer subsidized residual values in order to make your monthly payment more affordable. For instance, if your car is worth $20,000 and should 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 have a value of $10,000. In the second case, the lessor needs to recoup a larger percentage of the car's value and therefore will charge you more. Important takeaway
Knowing the residual value of a car will help you decide on the best kind of car and type of financing is best for you.
6. Is there a wear and tear assessment? require your lessor to tell you how wear and tear is evaluated upon returning the vehicle. At the end of your lease, the vehicle will be inspected for any damage on the exterior, such as scratches, dents and cracks, and interior damage like the presence of stains. The car will be assessed for any damage that is excessive but you don't be required to pay to have the car inspected. The law also states that standards for wear and tear must be reasonable. The standards are based on the number of miles driven and the extent of damage on the car. If your car has minor damages, getting touch-ups before your assessment may prove worthwhile. What you should take away
Knowing the way wear and tear is determined will prepare you for any lease-end payments.
7. What is the money factor? It is determined by the "money factor" represents the total amount you'll be charged in finance fees for the leased vehicle. It's similar to the interest rate you would pay for a brand new car. It's typically represented as tiny decimal. Then, multiplying it by 2,400 will show the annual percentage you're taking on for your lease. To illustrate, if you're granted a lease with a factor of .0030 is equivalent to the interest that is 7.2 percent. Your credit score heavily influences the cash factor, therefore, before you go to the leasing office, you should be aware of your credit score. You can rarely discuss this number since lending institutions typically set it. Key takeaway
A money factor isn't the identical to an APR however, it will determine the amount you'll have to pay in addition to your lease price.
8. What is the lease mileage allowance , and what happens if I exceed it? A lease mileage allowance is the amount of mileage you are allowed to drive without additional charges. Leases typically allow 12,000 or 15,000 miles before charges begin to accrue. Excess mileage fees vary from 10 to 25 cents per mile, which will quickly accumulate. Understand your mileage allowance and anticipate the driving habits you will be using during your lease. Any lengthy road trip could cost you. While the mileage allowance is often a negotiable number, changing it can affect your monthly cost. Key takeaway
If you exceed your lease mileage allowance, it is going to cost you.
9. What happens if I can't pay a lease installment? While few people plan to be behind on their lease payments, it's important to know what can happen if you miss a payment. In general, default occurs if you fail to make three or more installments in consecutive days. The inability to pay your lease usually leads to and negatively affects your credit score. However, every lessor handles this situation differently. A lot of companies offer grace periods, which you should inquire about prior to making a commitment to the contract. It is also advisable to inquire about a worst-case scenario where you default. After a set amount of time, the lessor can and often charge you an early cancellation fee. Before signing, you should know what the cost would be. Key takeaway
Each lender handles default in a different way, so ask prior to time what penalties could occur.
10. Does the lease have the possibility of being extended? It is common to extend your lease for some months at the same cost, but the majority of lessors have a limit. Even if you are unsure whether you'll need for an extension of your lease inquire whether extending it will change the terms of your original lease or bring potential new cost. Knowing upfront the costs involved can help you better plan as your lease's expiration date approaches. In addition to any potential lease extensions, inquire about termination fees. Businesses must be clear about the conditions the leasing company may require the return of the vehicle or change conditions of the contract. Key takeaway
Inquiring about lease extensions ahead of time will ensure you don't have to pay for charges if you want more time at the end of your lease.
Final considerations to keep in mind before leasing Leasing a vehicle could be an excellent option for those who want to drive the latest models of vehicles without investing in buying an automobile. Here are some of the advantages and disadvantages to keep in mind while . Pros Leasing can be cost-effective. Drivers who don't drive much and thus won't exceed a lease's mileage limits might find leasing to be a better option for their budget than buying the new car. You can purchase a brand new car every couple of years. If you enjoy driving the latest models with the most recent technology, leasing allows you to upgrade every few years when your contract ends. Cons Leasing comes with restrictions that you don't have when buying the car. When leasing a vehicle, you'll have to limit the amount of miles driven. It's even more important to maintain the vehicle in good working order so that you don't incur additional costs when the contract ends. You don't build equity when leasing a vehicle. If you switch between leases, you'll never build any equity in your vehicle. Before visiting the dealer to ask leasing questions, think about your driving habits and decide whether leasing is the best option for you. A is a great beginning point to evaluate possible savings. Next steps Leasing a vehicle is a big commitment, but it can pay off If you know what you're getting into. Be prepared. Make sure you ask the right questions and read the fine print of a lease agreement to secure the most favorable deal. Learn more
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Written by
Allison Martin's work began over 10 years ago as a digital content strategist. Since then, she's published in numerous prestigious 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 from late 2022. He believes in the clarity of his reporting, which helps readers easily get deals and make most appropriate choices regarding their money. He specializes in small and auto loans.
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