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Mistakes to avoid when leasing a car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by providing you with interactive financial calculators and tools that provide objective and original content, by enabling users to conduct research and compare information for free and help you make financial decisions with confidence. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this website come from companies who pay us. This compensation can affect the way and where products are displayed on this site, including, 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 or home equity products, as well as other products that lend money to homeowners. But this compensation does have no impact on the content we publish or the reviews that you read on this site. We do not contain the vast array of companies or financial offerings that could be available to you. Thomas Barwick/Getty Images

8 min read Published January 11, 2023

Authored by Dan Miller Written by Points and Miles Expert Contributor Dan Miller is a former writer who contributed to Bankrate. Dan covered loans, home equity , and the management of debt in his work. Edited by Chelsea Wing Edited by Student loans editor Chelsea has been with Bankrate since early 2020. She’s dedicated to helping students navigate the high cost of college as well as breaking down the complexities of student loans. The Bankrate guarantee

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You have money questions. Bankrate can help. Our experts have helped you understand your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to be successful throughout their financial journey. Bankrate adheres to a strict code of conduct policy, which means you can be confident that our content is truthful and precise. Our award-winning editors, reporters and editors produce honest and reliable content that will help you make the best financial decisions. The content created by our editorial team is factual, objective, and not influenced by our advertisers. We’re honest about the ways we’re in a position to provide quality information, competitive rates and helpful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain hyperlinks on our website. Therefore, this compensation may affect the way, location and when products are displayed within the categories of listing and categories, unless it is prohibited by law. This is the case for our mortgage home equity, mortgage and other products for home loans. Other factors, such as our own proprietary website rules and whether the product is offered in the area you reside in or is within your self-selected credit score range can also impact how and where products appear on this website. We strive to offer an array of offers, Bankrate does not include details about every financial or credit products or services. gives you a vehicle that you can drive around for a set number of months and miles. It’s similar to renting an apartment instead of buying a home. There’s no long-term commitment to make, however, you need to be responsible for the cost. A monthly lease cost for a vehicle is often lower than buying it with an . The average savings for drivers is $138 per month in monthly payments as per the 4th quarter in 2022. However, there are downsides to consider. Seven mistakes to avoid when leasing a car Leasing could lower your monthly payments, but it can be extremely costly if do not pay attention to the small print. Avoid these five common mistakes in the event that you choose to lease your next vehicle. 1. In the beginning, you’re paying too much. Car dealers advertise low monthly lease rates on new vehicles, but you could have to pay several thousands of dollars in advance to receive the affordable monthly payment. This money will cover a part of the lease in advance. If the car is destroyed or stolen within the initial few months, you will reimburse the leasing company for the value of the vehicle, however the leasing company would likely not refund your down amount. You’d be out of a vehicle, and the initial cash you paid for the lease company would essentially disappear. It’s suggested that you do not spend more than $2,000 in the beginning when leasing a car. In certain situations it might be beneficial to make no deposit and then roll the entire fees into your monthly lease payment. If something happens to the vehicle prior to the expiration of the lease term then at the very least, the leasing company doesn’t own a big chunk of your money. 2. Do not negotiate the lease agreement. Certain elements of lease agreements are usually included, such as the: Buyout price: The amount you’ll be paying the dealer if you choose to purchase the vehicle when the lease ends. Disposition fee: This charge will cover the cost of the dealer for preparing your vehicle for sale after it’s turned in. Gross capitalized cost: Also known as the price of sale for the vehicle, this figure impacts the monthly payment and the buyout price. Mileage allowance: Leases include an established amount of miles you’re permitted to drive each year, and not adhering to this limit means that you’ll be charged additional charges unless you purchase the vehicle when the lease expires. Money factor: The cost you’ll have to pay for leasing the car — basically the interest rate. In the event that you do not negotiate these figures, it could result in you leaving hundreds or thousands of dollars in cost savings off the table. 3. Not buying gap insurance If you drive a leased car, you should be able to pay for . The “gap” refers to the difference between what you still have to pay on your lease and the value of the car. Let’s say your contract states that at the expiration of the lease, you will be able to purchase this car with a price of $13,000. If you crash and total the car before the lease expires the insurance company will decide the current value of the car and transfer that value to the dealer that is the owner of the vehicle. In the event that the insurance company states that the market value is only $9,000. In this case you’ll likely be required to pay $4,000 of pocket to pay for the difference between the lease’s residual value and the true market value – except if you already have gap coverage. The gap insurance will pay the difference. A lot of leases offer gap insurance. The dealer may offer to offer you gap insurance, however, you might choose a lower-cost policy through a traditional insurance provider. However, the protection is well worth the cost. 4. Underestimating how many miles you’ll drive on the car. To avoid additional costs, be aware of your driving habits prior to leasing the car. Take note of your commute each day and how often you make long drives. You can request a higher mileage limit when you’re certain you’ll be driving more miles than your contract allows. But, it will likely raise your monthly payments because additional miles will cause a greater amount of depreciation. It’s common for leasing contracts to stipulate annual mileage limitations of 12,000, 10,000 or 15,000 mile. If you exceed those mileage limit, you could be charged as much as 30 cents per additional mile after the expiration term. For example, if you exceed the limit by more than 5,000 miles, you could end with a debt of $1,500 — at the rate of 30 cents per mileat the time you turn the car in at the end term. 5. Not maintaining the car If your car has damage that goes beyond normal wear and tear, you could be on the hook for additional fees when it’s time to return it to the seller. If the car has scratches but the scratch is smaller than the width that is the border of a driver’s license or business card, most businesses will consider it to be normal use and won’t issue a fine. If the leasing company believes the damage to be excessive, they could charge additional charges. The term “normal use” can vary from dealer to dealer. Your lessor will inspect the vehicle before turning it in , and will look for scrapes and dents on the wheels and body and windshields, scratches to the glass and windows as well as excessive wear on the tires, and tears or stains in the interior upholstery. Do not assume that your inspection will be lenient. 6. If you lease a car for too long? Make sure that the lease duration coincides with or is less than the warranty duration of the car. Warranties differ from manufacturer company, but generally last up to three years or 36,000 miles, whichever occurs first. If you intend to keep the vehicle for longer than the warranty time then you might need to think about an extended warranty. Otherwise, you could be responsible for repair and maintenance costs on a vehicle you don’t own , while also making monthly lease payment. It’s likely to be better off buying the car if you’re planning to lease it for an extended period, says Barbara Terry, a Texas-based automobile writer and expert. “If the owner owns the vehicle, he’d have to purchase the car as well as maintain it and repairs, but he’d be able to keep driving it over a number of years without having to worry about a monthly rental fee,” Terry says. Use an to figure out whether buying or leasing a car can help you save cash over the long term. 7. Don’t think about the lease-specific insurance requirements. If you’ve had the opportunity to finance a car before, you may already know that all lenders require that you be covered for collision and comprehensive. If you’re making your first attempt however, you may not know that you may also have to raise your liability limits. The liability coverage part of your car insurance policy will pay for the other party’s medical expenses and property damage if you’re at fault in an accident. In addition to collision and comprehensive the majority of leasing companies require that you maintain liability limits of at least $100,000 per person, and $300,000 per accident, in addition to $50,000 for . You may see this denoted as 100/300/50 in your policy documentation. Depending on your current liability coverage, these limits may increase your coverage, which could already be higher than you’re used to after the addition of your new vehicle. To avoid any surprises it’s a good idea to get an insurance quote for the car you’re considering prior to signing the dotted line. How to lease a car A car lease allows you to “borrow” an automobile instead of purchasing a brand used or brand new car. It usually comes with a three-year or four-year contract and a comprehensive contract, therefore there are numerous things to think about before signing the long-term contract. Choosing to lease instead of purchasing a car can be a great way to drive a newer car with the latest technology and features for less than the cost of a monthly. If you’re ready to lease a car, follow these steps: Do your research . You can lease just about any kind of car made in recent years. You’ll need decide on the type and the brand you’re most interested in before taking into consideration how the cost can be incorporated into your budget. Be sure to pay attention to your habits of driving and how the car can fit into your daily routine. Bankrate tip

When planning your budget, you should make a small payment before you drive off the lot in order to pay tax and fees. If you wish to lock in lower monthly payments over the course of the lease, look into putting a larger amount down.

Visit dealers Next, visit a few dealers and take some test drives. This will help find what exactly you’re searching for. It may be beneficial to call ahead and get an idea of what’s available and if test drives are currently allowed. Bankrate tip

When you go to dealer showrooms be aware that you could be met with higher prices. have not been able to remain in the leasing market unaffected and, even though it is still believed to be less expensive than buying be prepared for an increase in competition.

You can negotiate the lease terms The majority of the lease terms are up for during the leasing process. And the negotiation phase is the only chance to secure the benefits you desire in writing. If you want to be the most effective negotiator look up current prices on websites like Kelley Blue Book and remember to go beyond price. Bankrate tip

A great lease deal is one that leaves you with as little cost over the lifetime of the loan as possible — beginning with a down payment. If negotiations are a challenge for you consider bringing a trusted partner to handle the hard discussion. Also, keep in mind that could make securing an improved lease more difficult.

Compare deals Take advantage of online resources and compare the offers you’re offered to ensure you get the best price. Visit a few dealerships before making a decision on the purchase of your car. Be aware of the monthly costs of the mileage cap, purchase price, the capitalized vehicle cost. Be sure to look over the charges the lender is charging, such as the acquisition fee, disposition fee and early termination fee, to gauge if it’s similar to similar offers. And don’t forget to inquire about the due amount when you sign the contract. Bankrate tip

When comparing lease offers, look at the fine print and the vehicle itself. While driving for a test drive take note of how the vehicle drives and see if it is a good fit with your lifestyle.

Maintain the car throughout your lease . Keep in mind that you have to return the car at the end of the lease term. If it’s in poor condition, you might be required to pay for additional fees. Before you lease a car inquire about the rules regarding the lease-end conditions. These guidelines outline the kinds of damages you’ll need to cover before you return your car. Tips for Bankrate

If the vehicle is seriously damaged, motorists can expect to be charged full market prices for repairs. If you’re in this situation , you’ll have two options. You could either return your car for sale, or purchase the car or lease a brand new car.

Car leasing or. purchasing a car, consider your priorities when deciding whether to . Reflect on how many miles you drive per year; if you drive a lot the cost of leasing could become prohibitive. Think about the pros and cons of each option. Pros of leasing

Cons of leasing

Since you’re not paying for the whole price of the car you’ll usually pay a lower monthly payment.

When the term ends on leasing, your vehicle is not yours anymore. You’ll need to find a new car or buy the vehicle you leased.

If owning a brand new or more expensive automobile is important to you, your monthly lease payments will be more affordable than putting down a large payment to buy it.

There is also the possibility of having to pay a turn-in fee at the conclusion of the lease if you do not lease another vehicle from the dealer.

With a car lease, you are usually getting a new car. This can save you money on the ongoing costs of maintenance.

The majority of leases have the option of a mileage allowance. when you exceed the allotted amount, you’ll be charged massive per-mile costs.

The next step If leasing is the right choice for you, make sure to do your research, compare and make sure you lease fits your driving habits and budget. Be aware of your monthly expenses and specifics and terms. To determine your monthly installment amount it is the responsibility of the dealer to analyze the value of your new vehicle versus its residual value. As with all transactions involving financing, the higher your credit score is, the lower the interest rate.

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Authored by Points and Miles Expert Contributor Dan Miller is a former contributor for Bankrate. Dan was a writer for Bankrate who covered loans, home equity as well as debt-management in his writing. Written by Chelsea Wing Edited by Student loans editor Chelsea is with Bankrate since the beginning of 2020. She is invested in helping students manage the steep cost of college as well as breaking down the complexities in student loans.

Student loans editor

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