Leasing a car means you get to drive a vehicle for a certain number of miles and months, without fully owning it. It’s a bit like renting an apartment instead of buying a house. You don’t stay locked into a long-term commitment, but you still have to make regular payments.
Leasing a car can feel like a big decision because you’re agreeing to drive a specific car for a set amount of time and miles. Understanding how car leases work and knowing the common mistakes to avoid can help you figure out if leasing is a good choice for you and help you get the best deal.
Before you head to a dealership to sign a lease, there are some important things to consider. By being aware of these potential mistakes, you can find a deal that fits your needs and saves you money.
What Not to Do When Leasing a Car?
Don’t Ignore the Fine Print
Don’t Overlook the Mileage Limits
Don’t Forget About Maintenance
Don’t Skip the Down Payment
Don’t Ignore the Residual Value
Don’t Neglect Insurance Requirements
Don’t Agree to Unnecessary Add-Ons
Don’t Forget About End-of-Lease Costs
Don’t Rush the Decision
Don’t Assume Leasing Is Always Cheaper
9 Worst Common Car Leasing Mistakes to Avoid
Leasing a car can be a good option, but it also has some downsides that you should think about before you sign the lease. While it can lower your monthly payments, it can also end up being quite expensive if you’re not careful. To help you avoid costly mistakes, here are five common things to watch out for when leasing a car.
1. Putting Too Much Money Down
Some car dealers may ask for a large down payment to help lower your monthly payments. This money typically goes toward the cost of the lease, but putting too much down isn’t always a good idea.
If your car gets stolen or damaged in an accident early in the lease, the insurance company will pay the leasing company, but you might lose your down payment. You could be without a car and out the money you paid upfront.
A safer choice is to pay less upfront or even nothing at all. This may raise your monthly payments a bit, but it will protect you from losing a large amount of money if something happens to the car. It’s recommended to put no more than $2,000 down. In some cases, you might even choose to add all costs into your monthly payments. That way, if anything goes wrong with the car, you won’t lose your cash.
2. Paying Full Price for the Car
It’s easy to get caught up in the monthly payment when leasing a car, but you need to look at the total cost of the lease. If the dealer charges you full price for the car, you may not be saving as much as you think.
Even a small discount—like $1,000 off the price—can have a big impact on how much you pay over the life of the lease. Always try to negotiate the price of the car, not just the monthly payment, to make sure you’re getting the best deal.
3. Not Negotiating How Much Pay For
Each new vehicle comes with a Manufacturer’s Suggested Retail Price (MSRP). The MSRP is a suggestion of how much you should pay for a car purchase. You can negotiate the lease terms and the capitalized cost of your leased car, which is the total amount you’ll pay to lease. This may result in a lower monthly payment or a lower down payment at signing.
Several components of car lease agreements are typically negotiable, including the following:
Purchase Price: The amount you will pay the dealer if you choose to purchase the vehicle when the lease ends.
Disposition Fee: This fee covers the dealer’s costs to prepare the vehicle for sale once it is delivered.
Gross capitalized cost: Also known as the vehicle’s sales price, this figure impacts the monthly payment and purchase price.
Mileage Allowance: Leases come with a pre-set number of miles you can drive annually, and if you don’t meet this limit, you’ll incur additional fees unless you purchase the vehicle when the lease ends.
Money factor: the price you will pay to lease the vehicle; essentially, the interest rate.
Not negotiating these figures could mean leaving several hundred or thousands of dollars in cost savings on the table. However, keep in mind that negotiation does not work in all cases. Some leased cars already have a reduced price set by the manufacturer and dealer.
4. Not taking out gap insurance
If you lease a car, you’ll need to get gap insurance. The “gap” is the difference between what you still owe on your lease and the actual value of the car.
In addition to the insurance required by your state, the lender (the company that owns the car) may also require you to have gap insurance as part of your lease agreement. Gap insurance helps cover the difference between what you owe on the lease and what your car is worth if it’s stolen or damaged beyond repair.
Even if the dealership doesn’t require gap insurance, it’s a good idea to consider getting it. Many dealerships offer this type of insurance, and it can save you thousands of dollars if your car is involved in an accident and you owe more than it’s worth.
5. Underestimate the number of miles to drive
Negotiating mileage in your lease can help you spend less money if you plan to travel frequently. You might request a higher mileage limit if you know you will likely drive more miles than the agreement allows. However, that will likely increase your monthly payment because the extra miles will result in more depreciation.
Mileage is typically capped at between 12,000 and 15,000 miles per year. If you exceed the limit, you will have to pay a fee for each mile you exceed. If you exceed those mileage limits, you may be charged up to 30 cents per additional mile at the end of the lease.
Before accepting a lease, it’s important to carefully evaluate your driving habits to make sure the limits are workable. If you think you might end up going over the limit, you can ask the dealer to increase your mileage limit. Just keep in mind that it will still cost you.
6. Keep the car too long
Leasing should be a short-term commitment. If you sign a lease for more than three years, you could run into problems. Lease contracts generally include a vehicle warranty good for a specific number of miles. The longer the lease term, the more likely you will have to pay for maintenance or repairs that are not covered after the warranty expires.
If you decide to take out a four or five-year lease, it may be worth investing in an extended warranty to help cover some of the additional cost. Otherwise, you risk having to invest even more money in a car that you don’t actually own.
7. Not maintaining the car
If your car has damage beyond normal wear and tear, you could have to pay additional fees when it comes time to return it to the dealer.
If a car has a scratch but the mark is smaller than the width of the edge of a driver’s license or business card, many companies may consider it normal wear and tear and probably won’t charge a fine. If the leasing company considers any damage excessive, it may charge additional fees.
If you don’t keep up with regular oil checks or tire rotations, this could come back to bite you at the end of the lease and you could end up paying more than you thought.
8. Carefully Read the fine print
Like any other contract, you should read the fine print or lease agreement carefully before finalizing the agreement. For example, dealers often include specific details about how the car should be maintained during the lease period. A small scratch may not seem like a big deal, but it could end up costing you a lot if you get fined when you trade in the car. It pays to know exactly what you’re getting into before you leave the dealership. .
9. Don’t Forget About your credit score
Things like credit cards, debt, or large purchases could affect your credit score, which can cause problems with your lease. Keep this in mind when trying to calculate how much a new car lease might cost you. Each dealer needs a minimum credit score while leasing a car.
Depending on your score, you may not get the benefit a dealer advertises for their leases, since those offers typically go to buyers with excellent credit. If you have a poor credit then it’s better to improve your credit score before leasing a car.
How Can I Lease a Car?
Leasing a car instead of buying one can be a great way to drive a newer car with the latest technology and features for a lower monthly payment. If you’re ready to lease a car, here are the steps to follow:
Do Your Research
Before heading to a dealership, figure out the make and model of the car you want to lease. Also, take a look at your budget and decide how much you can afford to pay each month for the lease.
Find the Best Deals
Visit a few dealerships and schedule test drives. This will help you decide which car works best for you and give you the opportunity to explore different lease offers available on new vehicles.
Negotiate Your Lease
After choosing the car you want to lease, talk to the dealer about the lease terms. Negotiate for a better deal on the car’s value, mileage limits, and any extra features you may want, such as gap insurance.
Compare Offers
Collect all the information you receive from different dealerships, both online and in person. Compare their offers and pick the one that suits your needs and budget the best.
End Your Lease
Once you’ve made your decision and compared offers, return to the dealership you’ve chosen and sign the lease paperwork for your new car.
By following these steps, you can lease a car that meets your needs and helps you save money in the process.
Tips to Avoid Car Leasing Mistakes
Now that we’ve looked at the most common car leasing mistakes to avoid, let’s explore some tips to help you successfully navigate the leasing process.
Researching the best car lease deals: Take the time to research current lease deals and compare offers from different dealers. This will give you an idea of market rates and help you negotiate a better deal.
Understand leasing terminology: Familiarize yourself with common leasing terms and conditions, such as the lease term, mileage limits, and additional fees. This will help you understand the lease and avoid surprises.
Assessing Your Transportation Needs: Evaluate your driving habits and transportation needs to determine if leasing is the right option for you. Consider factors such as mileage requirements, lifestyle changes, and future plans that may affect your need for a car.
Reading and understanding the lease: Read and understand the lease carefully before signing it. Pay close attention to the lease terms, mileage limits, and any additional fees or charges. If there is something you don’t understand, don’t hesitate to ask for clarification.
Calculate the total cost of leasing: Consider the total cost of leasing, including the down payment, monthly payments, insurance, maintenance and repair costs. Compare this to the cost of purchasing a similar car to determine if leasing is the most cost-effective option for you.
By following these tips and avoiding the common car leasing mistakes mentioned above, you can ensure a smooth and profitable leasing experience.
How to Lease a Car for the First Time
Leasing a car for the first time can seem complicated, but if you follow these steps, you’ll be better prepared for the process:
Determine Your Budget
Start by figuring out how much you can afford to spend each month on a lease. While leasing typically requires a lower down payment and has lower monthly payments compared to buying, it’s still important to make sure the payments fit within your budget.
Research and Choose a Car
Think about the type of car you want to lease based on your needs, preferences, and budget. Consider things like the size of the car, fuel efficiency, features, and the brand. This will help you narrow down your options.
Check Your Credit Score
Your credit score is important because it affects the terms and interest rates of your lease. Check your credit score before you start the leasing process. If your credit score is high, you’re more likely to get a better deal. If your credit is low, try looking for dealerships that offer leases to people with bad credit.
Research Lease Offers
Look around for lease deals from different dealerships and car manufacturers. Compare important details like the monthly payments, mileage limits, and any special promotions. Keep in mind that some dealerships may have specific income requirements to qualify for a lease.
Visit the Dealerships
Once you’ve narrowed down your choices, visit a few dealerships to test drive the cars you’re interested in. Talk to the dealers about leasing options and be ready to negotiate terms like the price, down payment, and mileage limits.
By following these steps, you’ll be able to make a more informed decision and find the best lease deal for you.
Understand the terms of the lease
Carefully review the terms of the lease, including the length of the lease, mileage limits, maintenance responsibilities, and charges associated with the lease. Make sure you understand all terms and conditions before signing any agreement.
Negotiate the lease price
Negotiate the total cost of the lease. The capitalized cost, which is essentially the sales price of the car, is negotiable. Try to get the best deal possible to lower your monthly payments.
See incentives and discounts
Find out about any manufacturer incentives, rebates or lease specials that may be available. These can help reduce the overall cost of leasing. If you confuse about when to lease a car to get best deal, then try to lease a car in these times to get the best discounted deal.
Review and sign the lease
Review the lease carefully before signing it. Make sure all agreed-upon terms are clearly stated, including lease length, monthly payments, mileage limits, and fees.
Understand maintenance requirements
Please note the maintenance requirements outlined in the lease. You are generally responsible for routine maintenance and may be charged for excessive wear and tear when you return the leased vehicle.
Important Terms to Know While Leasing a Car
When leasing a car, it is essential to understand the terminology to avoid making car leasing mistakes. Below are some common terms you may encounter when leasing a vehicle:
| Capitalized cost | This is the price you’ll pay to lease your vehicle. |
|---|---|
| Closed-end lease | This is a typical lease, in which the lender is responsible for any reduction in the car’s residual value at the end of the lease. |
| Depreciation | This is the rate at which the car loses value over the term of the lease. |
| Disposition fee | This fee covers the cost of preparing and selling the vehicle at the end of the lease. |
| Early termination | This describes ending the lease before the scheduled termination date. In most cases, you will pay an early termination fee if you end the contract voluntarily. |
| Gap coverage | This pays the difference between what you owe and the value of your leased car if it is totaled or stolen. |
| Money factor (also known as lease factor) | This is the fee you will pay to lease your car. It is usually expressed as a small decimal that can be multiplied by 2400 to get the interest rate. |
| Purchase option | This is your right to purchase the vehicle at the end of your lease. |
| Residual value | This is the projected value of the car at the end of the lease term. |
Leasing a Car Vs Buying a Car
Consider your priorities when deciding whether to lease or buy a car. Reflect on how many miles you drive per year; If you drive a lot, leasing can be expensive. Consider the benefits and drawbacks of each approach.
| Aspect | Leasing | Buying |
|---|---|---|
| Customization | The vehicle must be returned in its original condition. | You are free to modify or customize the vehicle as you see fit. |
| Mileage | Leases limit the number of miles you can drive, but you can negotiate a higher mileage limit. | There is no mileage limit, so you can drive as many kilometers as you want. |
| Monthly payments | Generally, lease payments are lower because you only pay to use the car. | Loan payments are usually higher because you are paying the full purchase price. |
| Ownership | You don’t own the car; You return it at the end of the lease. | You own the car and can keep it as long as you want. |
| Upfront cost | Typically includes first month’s payment, a refundable security deposit, down payment, taxes, registration and other fees. | Generally includes the price in cash or a down payment, taxes, registration and other fees. |
| Vehicle return | You must return the vehicle at the end of the lease unless you choose to purchase it. | You can sell or trade in your vehicle at any time. |
| Wear and tear | You may be charged extra for excessive wear. | As an owner, you don’t have to worry about wear and tear, but it could reduce the trade-in or resale value of your car. |
Is it a Good Idea to Lease a Car?
Leasing a car can be a good idea to avoid paying the price of vehicle depreciation that comes with purchasing a car. It also allows you to avoid expenses with lower car payments and routine maintenance. You can also get the newest vehicles without having to bear all the costs of ownership.
Pros and Cons of Leasing a Car
These are the pros and cons of leasing a vehicle:
Pros
Lower monthly payments since you are not paying the full cost of the vehicle.
Save on maintenance costs with a new car.
Drive the latest car models.
Cons
You need to return the car at the end of the lease period unless you decide to buy it.
Save on maintenance costs with a new car. You must comply with the annual mileage limit or pay additional fees.
Car leasing Do’s and Don’ts
Leasing a car can be a great way to drive a new vehicle without the long-term commitment of ownership. But to get the best deal, you need to know what to do and what to avoid.
✅ DO:
✔ Negotiate the price: The lease price is based on the car’s selling price. Always negotiate before signing.
✔ Know the mileage limit: Standard leases allow between 10,000 and 15,000 miles per year. If you drive more, negotiate a higher limit upfront to avoid hefty fees.
✔ Understand the fees: Ask about acquisition, disposal, and early termination fees. Hidden costs add up quickly.
✔ Maintain the car: Follow the manufacturer’s maintenance schedule. Excessive wear and tear can result in fines at the end of your lease.
✔ Consider GAP insurance: If your leased car is totaled, GAP insurance covers the difference between what you owe and what the insurance pays.
❌ DON’T:
✖ Pay too much upfront: A high down payment won’t reduce the monthly cost enough to make the risk worthwhile. If the car is totaled, you may not get that money back.
✖ Ignore the fine print: Read the lease terms carefully. Some leases have strict return conditions or unexpected fees.
✖ Exceed the mileage limit: Additional miles can cost 15 to 30 cents each. That adds up quickly.
✖ Forget to compare offers: Shop around. Each dealer offers different leasing incentives, and loyalty programs can save you money.
✖ Assuming leasing is always cheaper: Sometimes, financing a car purchase is a better option in the long run, especially if you plan to keep it for many years.
How to Lease a Car with Bad Credit
If you have bad credit, leasing a car will probably be more difficult. However, that doesn’t necessarily mean it’s a bad option. You should carefully consider your financial situation and determine whether it makes sense to lease a car with bad credit.
If you can wait to get a car, it’s a good idea to increase your credit score before leasing. You’ll pay less money overall and could give you more options. Learn more how to lease a car with bad credit.
Final Thoughts
If leasing is right for you, do your homework, compare prices, and crunch the numbers to make sure you get a lease that fits your driving habits and budget. Pay close attention to your monthly costs and terms and conditions.
To calculate your monthly payment amount, the dealer will look at the value of the new car versus its residual value. As with any transaction involving financing, the higher your credit score, the lower your interest rate.
FAQs
Can you negotiate the terms of your lease?
Yes, many elements of a lease are negotiable, including the price of the car, the mileage limit, and the money factor. Don’t be afraid to negotiate these terms to potentially save money on your lease.
What if you want to end your lease early?
Ending your lease early can result in steep fines. The exact cost can vary, but are often multi-month payments. If you think you might want to end your lease early, make sure you understand the early termination policy before you sign the lease.
What happens when you exceed the mileage limit on your lease?
If you exceed the mileage limit preset in your lease, you will incur a charge for each additional mile. If you think you might exceed the limit, it may be more economical to negotiate a higher mileage limit in advance.
What happens if you damage your rental car?
If you damage a leased car, you are responsible for repairing it. If you return the vehicle with damage, the leasing company will likely charge you for repairs. It is often cheaper to repair the damage yourself before returning the car.
