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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 financial calculators and tools that provide objective and original content. This allows you to conduct research and compare data for free to help you make sound financial decisions. Bankrate has agreements with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that appear on this site are from companies that compensate us. This compensation can affect the way and when products are featured on this site, including for instance, the sequence in which they be listed within the categories of listing, except where prohibited by law. Our loan products, such as mortgages and home equity, and other home loan products. But this compensation does have no impact on the content we publish or the reviews that you read on this site. We do not cover the entire universe of businesses or financial offerings that could be open to you.
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 content strategist, and she’s since been published in several leading financial 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 since late 2022. He is a fan of transparent reporting that allows readers to easily land deals and make the best choices for their finances. 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 obligation to purchase it. It can be a great opportunity to buy a brand new car without fully committing financially. It’s especially beneficial for those who drive lesser than 15,000 kilometers each year and don’t have to worry about mileage overages. But leasing can be complicated. To find the most affordable deal, you should prepare yourself with some questions. 10 questions you should ask before taking out a lease on a car. If this is something you’re contemplating leasing it, don’t take the first offer you see. Set yourself up for success by asking these questions before you make a decision. 1. What is the due amount when I sign the lease? Before signing a lease, you will receive a thorough written description of all the fees you have to pay. The upfront payments may include a security deposit and title fees, a capitalized cost reduction, monthly payments paid at signing as well as registration costs. Knowing the amount due when signing the lease can help you avoid overspending. Also, knowing the cost breakdown of all can help you to negotiate better. Key takeaway
The price you sign off on will typically be more costly than the price that attracted you, so ask for a list of fees first.
2. How long will the lease last? A leasing firm will tell you how many installments the lease covers, how much each payment will be , and the time the payments will be due. The most commonly used lease terms are 24, 36, 48 and 60 months however you can also find strange terms, such as 39 months. Certain odd-month leases could be intended to make you confused. When looking through the leasing options, be aware that a longer lease offers lower monthly installments, but you’ll be paying more . The most important thing to remember is
Consider your options prior to agreeing to a lease term and be aware of how the lease duration will affect your monthly payment.
3. What type of lease do I have to sign and what happens after it ends? There are two types: close-end as well as open-end. In a closed-end lease, the leasing company determines the total cost basing on their estimate of the vehicle’s depreciated value. If your car depreciates more than anticipated during a closed-end lease, the only additional costs you’re responsible for is the extra mileage and wear-and-tear fees. The most popular type of lease. In an open-end or financial lease you will have to cover the difference between the car’s residual value and its actual price at the expiration of the lease. If the vehicle depreciates faster than anticipated, you could be charged a significant amount at the close period. In both instances, make sure you read the fine print to ensure you do not get surprised by additional lease fees. The most important thing to remember is
Knowing what type of lease you’re entering into allows you better plan your payments.
4. Do I have the option of buying the vehicle at the end term of lease? If you want to then, you might have the option to buy it for the residual value or purchase price that’s included in the lease contract. Before you do, make sure to check the residual value against the retail value of the vehicle to decide if you’re receiving an excellent deal. Also, evaluate the car’s condition to determine whether it’s in good condition and hasn’t depreciated significantly. There’s a chance that a buyout isn’t worthwhile unless you’re faced with steep wear and tear charges or penalties for exceeding the mileage limit. 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 confirm it makes financial sense.
5. Is the value residual of the vehicle? A vehicle’s residual value is the amount it’s expected to have at time of lease. Lease companies determine what the value of residual is, however you can find an estimate . This number can be helpful as it’s an important element in determining your monthly payments. The greater the value of residual compared to the car’s original cost, the lower your monthly payment. Furthermore, some automakers and lessors subsidize residual values as a to make your monthly payment less expensive. For example, if your car is worth $20,000 and is expected to be worth $15,000 by the expiration of the lease, you’ll have less of a monthly payment than if you opt for an $20,000 vehicle that is expected to be worth $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 helps you determine which 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 the method by which wear and tear is assessed upon returning the vehicle. At the end of your lease, the vehicle will be examined for exterior damage like scratches, dents and windshield cracks, as well as the interior, such as the presence of stains. The car will be assessed for any excessive damage, though you won’t be charged to have the car inspected. The law also stipulates that the wear and tear standards should be reasonable. The standards are based on the number of miles you traveled as well as any damage that was done on the car. If your car has minor damages, getting repairs prior to your assessment might be worth it. What you should take away
Knowing how wear and tear will be assessed will help prepare you for any lease-end payments.
7. What is the money factor? What is the “money factor” refers to the total amount you’ll pay in finance charges for the leased vehicle. It’s similar to the interest rate you’d be paying for a brand new vehicle. It’s usually represented as tiny decimal. Then, multiplying it by 2,400 will show the annual percentage rate you are having to pay for lease. To illustrate, if approved for a lease with a factor of .0030 is equivalent to an interest rate of 7.2 percent. Your credit score has a significant impact on the money factor, so prior to going to the leasing office. You can rarely negotiate this number because lenders typically determine it. It is the most important lesson to take away
A money factor is not the identical to an APR but it can decide how much you’ll be charged in addition to your lease price.
8. What is the lease mileage allowance , and what happens if I exceed it? A lease mileage allowance refers to the amount of mileage you may drive without facing extra charges. The typical lease allows 12,000 or 15,000 miles before charges begin to accrue. The fees for excess mileage can vary between 10 and 25 cents for each mile. This adds up quickly. Know your allowance for mileage and try to anticipate your driving habits throughout the lease period, since long-distance road trips could cost you. Although the miles allowance can be negotiated number, changing it will have an impact on your lease payment. The most important thing to remember is
If you exceed your lease mileage allowance, it is going to cost you.
9. What happens if I’m not able to make a lease payment? Although few plan to fall behind on their lease payments, it’s important to be aware of what might occur if you fail to make a payment. A default typically happens in the event that you don’t make more than three payments in the same row. In the majority of cases, not paying your lease results in negative impact on your credit score, however every lessor deals with this differently. There are many companies that offer grace periods, which you should inquire about prior to signing the lease. It is also important to ask about a worst case event in which you are not able to pay. After a certain amount of time, the lessor can and, in many cases, demand an early cancellation fee. Before you sign, be sure to know the price. The most important thing to remember
Each lender handles default in a different way, so ask prior to time what penalties can be expected.
10. Can the lease be extended? You can usually request to extend the lease by some months at the same price, though many lessors are limited. Even if you’re not certain whether you will need for an extension of your lease you should inquire whether it would alter the terms of the initial lease or bring potential new costs. Knowing upfront the costs involved can aid you in planning as your lease’s expiration date approaches. Along with the possibility of lease extensions, you should inquire about the fees for termination. Businesses must be clear about the circumstances the leasing company can request the return of their vehicle or alter conditions of the contract. Key takeaway
Inquiring about lease extensions ahead of time will ensure you aren’t blindsided with charges if you want more time at the end of your lease.
Final considerations to keep in mind prior to leasing a vehicle can be a good choice for those looking to test drive the latest models of vehicles without having to purchase a car. Here are some pros and cons to keep in mind when . Pros Leasing can be cost-effective. Drivers who don’t drive much and therefore don’t have to exceed a lease’s mileage limits may find leasing a much better option for their budget than buying an entirely new vehicle. It is possible to purchase a new car every few years. If you like driving the latest models with the most recent technology, a lease permits you to upgrade your vehicle every couple of years once your contract is over. Cons Leasing involves restrictions which are not present when you purchase a car. When leasing a vehicle, you’ll be subject to limits on the number of miles you travel. It is even more crucial to keep the vehicle in good working order to avoid additional fees when the contract ends. You don’t build equity when leasing an automobile. If you switch between leases you’ll never build any equity in your car. Before heading to an auto dealer to inquire about leasing questions, think about your driving habits to see whether leasing is the best option for you. It’s a good starting point to see potential savings. The next steps are leasing a car. is a significant commitment however it’s an investment that can be repaid when you are aware of what you’re getting into. It’s important to prepare. Ask the right questions and study the details of the lease agreement to secure the best deal possible. Learn more
Allison Martin’s work began over 10 years ago as a digital content strategist, and she’s since been featured in a variety of top 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 from late 2022. He is a fan of transparent reporting that allows readers to easily find deals and make the best choices for their finances. He specializes in small and auto loans.
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