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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 better financial decisions by offering you interactive financial calculators and tools as well as publishing unique and impartial content, by enabling you to conduct your own research and compare information for free and help you make informed 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 website come from companies who pay us. This compensation could affect how and when products are featured on the site, such as 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 products for home loans. However, this compensation will not influence the information we provide, or the reviews that you see on this site. We do not include the vast array of companies or financial offerings that could be open to you.
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 content strategist. Since then, she’s been featured in a variety of top 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 the clarity of his reporting, which helps readers easily get deals and make best choices for their finances. He is an expert in small and auto loans.
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A car lease lets you lease a car for a short period of time, without having to buy it. It’s an excellent opportunity to buy a brand new set of wheels without having to commit to a financial commitment. It’s particularly beneficial for drivers who clock in lesser than 15,000 kilometers per year and won’t risk mileage overages. However, leasing can be difficult. To get the best deal it is best to be prepared with some questions. Ten questions to ask prior to leasing a car If you’re thinking of not settling for the first offer you see. Make sure you are prepared by asking these questions first. 1. What is the amount due when I sign the lease? Before you sign a lease you will receive a thorough written list of all you must or may have to pay. The upfront payments may include security deposits as well as title fees, capitalized cost reduction as well as monthly payments due at the time of signing, as well as registration costs. Knowing the total amount due at the time of signing off on the lease helps you avoid overspending. Also, knowing the cost breakdown can allow you to negotiate better. The most important thing to remember
The amount you pay on will typically be higher than the sticker price that attracted you to it, so make sure you get the list of fees prior to signing.
2. How long is the lease? The leasing company will tell you how many installments the lease covers and how much each one will cost and the date when payments are due. The most commonly used lease terms include 24, 36, 48 and 60 months, however, you could also come across strange terms, such as 39 months. Certain odd-month leases could be intended to confuse you. When looking through the lease options, remember that a longer lease will provide lower monthly installments, but you will . Key takeaway
Weigh your options before concluding a lease and know exactly how your duration will affect the monthly installment.
3. What type of lease am I signing and what happens when it is over? There are two kinds of leases: Open-ended and Closed-End. For 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 the vehicle appreciates more than expected during the term of a closed-end lease, your only costs you’re accountable for are the excess mileage and wear-and-tear fees. The most common kind of lease. If you sign an open-end or finance lease, you be required to pay for any difference in the car’s residual value and its actual price at the end of the lease. If the vehicle depreciates faster than expected, you may have to pay a substantial amount at the expiration term. In both cases, read the fine print to ensure that you don’t get caught off guard by additional lease charges. Key takeaway
Knowing what type of lease you’re signing helps you plan better for your lease payments.
4. What happens if I want to purchase the car at the end term of lease? If you’d like to then, you might have the option to purchase it at the residual value or purchase price option that is included in the lease contract. But before you , compare the residual value to the retail value of the vehicle to decide if you’re receiving an excellent bargain. Also, look at the car’s condition to determine whether it’s in good condition and hasn’t significantly depreciated. It could be that a buyout isn’t worth the effort unless you’re faced with steep wear and tear fees or penalties for over the limit on mileage. The most important thing to remember is
The lender may allow you to buy out the lease before the term ends however, you must run the numbers to ensure it’s financially sensible.
5. Is the value residual of the vehicle? A vehicle’s residual value is the amount it’s believed to be at at time of lease. Lease companies determine their residual values, though you can find an estimate on . This number can be helpful because it is a key element in determining the monthly payment. The higher the residual value compared to the car’s original cost, the less your monthly installment. Additionally, certain manufacturers and lessors provide a subsidy to residual values as a to make your monthly payment more affordable. If, for instance, your car is valued at $20,000 and should be worth $15,000 at expiration of the lease, you’ll have an amount that is lower than if you choose the $20,000 car that will be worth $10,000. In the second situation the lessor must recover a higher percentage of the car’s value and thus will be charging you more. Important takeaway
Knowing the residual value of a car can help you figure out the kind of car and type of financing is best for you.
6. Is there a wear and tear evaluation? require your lessor to tell you what method wear and tear will be assessed upon returning the vehicle. When you are done with your lease, your car will be inspected for damage to the exterior such as scratches, dents and cracks, as well as internal damage such as the presence of stains. The cost will be assessed for any damage that is excessive but you don’t be charged to have the car inspected. The law also states that standards for wear and tear should be reasonable. The standards are based on the number of miles you traveled and the extent of damage to the vehicle. If your vehicle is in the process of undergoing minor damages, getting repairs prior to your assessment might prove worthwhile. Key takeaway
Knowing how wear and tear is evaluated will allow you to prepare for any payments at the end of lease.
7. What is the money factor? What is the “money factor” refers to the total amount you’ll have to pay in finance charges for the car you’ve leased. It’s similar to the rate of interest you’d pay for a brand new car. It’s usually represented in a small decimal. Multiplying it by 2,400 will show the annual percentage rate you’re paying for the lease. To illustrate, if granted a lease with a factor of .0030 that’s the interest of 7.2 percent. Your credit score is a major factor in the cash factor, therefore, before you go to the leasing office. You can rarely discuss this number since lenders typically decide on it. Key takeaway
A money factor isn’t the same as an APR, but it can determine how much you’ll pay on top of 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 can drive without having to pay any additional costs. The typical lease allows either 12,000 or 15,000 miles before charges begin to accrue. Extra mileage charges can range from 10 to 25 cents per mile. This adds up quickly. Know your allowance for mileage and be aware of your driving habits during your lease, as any long-distance road trips could cost you. Although the miles allowance is usually a negotiated amount, changing it could have an impact on your lease amount. Important takeaway
The excess mileage you have allowed for your lease will cost you.
9. What happens if I’m not able to make a lease payment? While it is not a common practice to fall in debt on lease payments, it’s important to know what can be the consequences if you don’t make a payment. Typically, a default happens if you fail to make more than three payments in consecutive days. The inability to pay your lease usually can negatively impact your credit score, but every lessor handles this situation differently. There are many companies that offer grace periods, which you must inquire about prior to making a commitment to the contract. It is also important to inquire about a worst-case scenario in which you fail to pay. After a certain amount of time, the lender can, in many cases, charge you an early termination fee. Before you sign, be sure to know what the cost would be. Important takeaway
Each lender handles default in a different way Therefore, you should inquire ahead of time to know the penalties that could be imposed.
10. Is the lease able to be extended? It is common to extend the lease by a few months at the same cost, but most lessors have a limit. If you’re not sure whether you’ll have to extend your lease, ask whether the extension will alter the terms of the initial lease or result in new costs. Knowing upfront the costs involved can aid you in planning the time when your lease is due to expire. Along with potential lease extensions, inquire about termination fees. Businesses must be clear about the circumstances they can demand their vehicle back or change conditions of the contract. It is a key takeaway
Ahead of time will ensure that you don’t have to pay for extra costs should you require additional time at the conclusion of your lease.
The final considerations to keep in mind before leasing Leasing an automobile can be a good choice for drivers interested in driving the latest models of vehicles 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 aren’t very active and don’t need to go over a lease’s mileage limits could find leasing to be a better option for their budget than buying the new car. It is possible to purchase a new car every few years. If you enjoy driving the latest vehicles with the newest technology, leasing allows you to upgrade each few 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 leasing a vehicle, you will face limits on the amount of miles driven. It’s even more important to keep the vehicle in good condition to avoid additional fees when the contract ends. It is not possible to earn equity when leasing the vehicle. If you switch between leases, you’re not creating any equity in the vehicle. Before heading to a dealer to ask leasing questions, think about your driving habits and decide whether leasing is the best option for you. It’s a good starting point to see savings potential. The next steps are leasing a car. is a major commitment, but it can pay off if you know the risks involved. Be prepared. Ask the right questions and study the details of the lease agreement to ensure you get the best deal. Learn more
Allison Martin’s work started over 10 years ago as a digital content strategist. She’s been published in several leading 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 values transparent reporting that allows readers to successfully find deals and make the best choices for their financial situation. He specializes in small and auto loans.
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