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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 choices by offering you interactive financial calculators and tools, publishing original and objective content. We also allow you to conduct your own research and compare data for free and help you make informed financial decisions. Bankrate has partnerships with issuers such as, 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 that pay us. This compensation could affect how and where products appear on this website, for example, for example, the order in which they may appear within the listing categories in the event that they are not permitted by law. This applies to our mortgage, home equity and other products for home loans. This compensation, however, does not influence the information we provide, or the reviews that appear on this website. We do not include the entire universe of businesses or financial deals that may be available to you.
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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 published in numerous prestigious financial media 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 from late 2022. He is a fan of transparent reporting that allows readers to successfully get deals and make most appropriate choices regarding their finances. He is an expert in auto and small business loans.
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Leasing a car lets you lease a car for a short period of time, without the obligation to purchase it. It’s a great option to purchase a new car without fully committing to a financial commitment. It’s particularly good for drivers who travel under 15,000 miles each year, and who don’t want to risk overages. However, leasing can be a bit complicated. To find the most affordable deal you must be prepared with a couple of questions. Ten questions to ask prior to renting a car if you’re contemplating leasing it, don’t take the first offer you see. Make sure you are prepared by first asking these questions. 1. What is the amount due upon signing the lease? Before you sign a lease you must receive a comprehensive written list of all you have to pay. Upfront payments could include a security deposit, title fees, reduced capitalized cost, monthly payments paid at the time of signing as well as registration costs. Knowing the amount due when signing the lease will help to avoid overspending. Plus, knowing the price breakdown can assist you to negotiate better. The most important thing to remember
The payment you sign off on usually is higher than the sticker price you were enticed by to it, so make sure you get an estimate of the fees first.
2. How long will the lease last? A leasing firm will inform you the number of payments that the lease will include as well as how much each installment will be and when the payments are due. The most commonly used lease conditions are 24 36, 48, 36 and 60 months however, you could also come across strange terms, such as 39 months. Some odd-month deals may be designed to make you confused. When looking through the lease options, remember that a longer lease offers smaller monthly payments, however you will . What is the most important takeaway
Be aware of your options prior to signing a lease agreement and know exactly how your term will affect the monthly installment.
3. What kind of lease do I have to sign and what happens when it expires? There are two kinds of leases: close-end as well as open-end. In a closed-end lease, the leasing company sets a total price based on their estimate of the depreciated value of the vehicle. Even if your vehicle depreciates higher than you anticipated in the term of a closed-end lease, your only additional costs you’re accountable for are the excess mileage as well as wear-and-tear costs. The most typical kind of lease. If you sign an open-end or financial lease you have to cover any difference in the residual value and the actual value at the close term. If the car depreciates more than anticipated, you could be charged a significant amount at the end of the lease. In both cases, be sure to read the fine print to ensure that you don’t get caught off guard by any additional end-of-lease fees. What you should take away from this is
Knowing the kind of lease you’re entering into allows you better plan the amount of payments.
4. Do I have the option of buying the vehicle at the close term of lease? If you’d like to buy the car, you could have an option to buy it in the amount of the residual value, or purchase price option included in the lease agreement. Before you do, make sure to check the residual value against the car’s retail value to decide if you’re receiving the best bargain. Also, assess the vehicle’s condition to find out whether it’s in good condition and hasn’t depreciated significantly. There’s a chance that buying out isn’t worth it unless you’re dealing with significant wear and tear fees or fines for exceeding the limit on mileage. What’s the most important lesson to take away
The lender may allow you to purchase your lease when the term ends However, you should do the numbers to confirm it’s financially sensible.
5. What is the residual value of the vehicle? A vehicle’s residual value is the value it is believed to be at at expiration of the lease. Lease companies determine the residual value, however you can get an estimate on . This number can be helpful because it is a key aspect when determining your monthly installments. The greater the value of residual in comparison to the vehicle’s initial cost, the lower your monthly payment. Additionally, certain automobile makers and lessors offer subsidized residual values as a way to make your monthly payments more affordable. If, for instance, your car is valued at $20,000 and should be worth $15,000 by the expiration of the lease, you’ll have a lower payment than if you select an $20,000 vehicle that is expected to have a value of $10,000. In the second scenario the lessor must recoup a larger percentage of the car’s value and thus will be charging you more. Important takeaway
Knowing the value of a vehicle’s residual helps you determine which type of car and which type of financing is best for you.
6. Is there a wear and tear evaluation? Ask your leaser to inform you whether and what method wear and tear will be assessed when you return the vehicle. At the end of your lease, the vehicle will be inspected for any damage on the exterior, such as scratches, dents, and windshield cracks, and interior damage like stains. The car will be assessed for any damages that are excessive but you don’t have to pay for the inspection. The law also states that standards for wear and tear are to be reasonable. The standards are determined by the amount of miles driven as well as any damage that was done to your vehicle. If your vehicle is in the process of undergoing minor damages, getting the repairs before you make your assessment could make sense. What you should take away
Knowing how wear and tear will be assessed will help prepare you for any end-of-lease payments.
7. What is the money factor? The “money factor” represents the total amount you’ll have to pay in finance charges for the car you’ve leased. It’s similar to the interest rate you would pay on a new car. It’s typically represented as the small decimal. Multiplying it by 2,400 will reveal the annual percentage rate you are having to pay for lease. To illustrate, if you’re accepted for a lease that has a factor of .0030 that’s the interest of 7.2 percent. Your credit score has a significant impact on the cash factor, therefore, before you go to the leasing office. You can rarely discuss this number since lending institutions typically set it. The most important thing to remember is
A money factor is not the same as an APR, however, it will decide how much you’ll be charged on top of the lease price.
8. What is the mileage allowance for leases and what happens if I exceed it? A lease mileage allowance refers to the amount of miles you are allowed to drive without additional charges. Leases typically allow 12,000 or 15,000 miles prior to when fees start to apply. Extra mileage charges vary from 10 to 25 cents per mile. This will quickly accumulate. Understand your mileage allowance and be aware of your driving habits during your lease, as any lengthy road trip could cost you. Although the miles allowance is usually a negotiated number, changing it can affect your monthly payment. The most important thing to remember is
Exceeding your lease mileage allowance will cost you.
9. What happens if I can’t pay a lease installment? Although few plan to fall behind on their lease payments, it’s crucial to know what can happen if you miss payments. A default typically happens if you fail to make more than three payments in consecutive days. In the majority of cases, not paying your lease can negatively impact your credit score. However, each lessor approaches this issue differently. There are many companies that offer grace periods, which you should inquire about prior to signing the lease. It is also wise to inquire about a worst-case scenario in which you fail to pay. After a set period of time, the lender may, in many cases, be charged an early end-of-term fee. Before you sign, be sure to know what that price would be. Key takeaway
All lessors handle default differently Therefore, you should inquire prior to time what penalties could occur.
10. Can the lease be extended? It is common to extend the lease by several months for the same price, though many lessors are limited. If you’re not sure whether you’ll need the lease to be extended, ask whether extending it will change the terms of your original lease, or if it could result in additional costs. Knowing upfront the costs involved can help you better plan when your lease’s end approaches. In addition to any possible lease extensions, ask about termination fees. Companies must disclose under what conditions the leasing company may demand their vehicle back or alter the terms of the deal. It is a key takeaway
Ahead of time will ensure you don’t have to pay for additional costs if you need additional time at the conclusion of your lease.
Final considerations to keep in mind prior to leasing vehicles can be a good choice for drivers interested in driving the latest models of vehicles without the expense of buying a car. Here are a few pros and cons to keep in mind while . The pros of leasing can be very cost-effective. Drivers who aren’t very active and don’t need to go over the limits of their lease’s mileage might find leasing to be a cheaper option than buying a new car. You can get a new car every few years. If you enjoy driving the latest vehicles with the newest technology, a lease allows you to upgrade your vehicle every couple of years after your contract expires. The cons of leasing are that it comes with limitations which are not present when you purchase a car. If you lease a car, you’ll be subject to limits on the miles traveled. It’s even more important to keep the vehicle in good working order to avoid paying additional charges after the lease ends. You don’t build equity when leasing an automobile. If you switch from lease to lease, you’ll never build any equity in your car. Before you visit a dealer to ask leasing questions, reflect on your driving habits to see whether leasing is the right choice for you. It’s a good start to determine the savings potential. The next step is leasing a car. is a significant commitment however it’s an investment that can be repaid if you know the risks involved. It’s important to prepare. Be sure to ask the right questions, and then read the specifics of a lease agreement to ensure you get the most favorable deal. Learn more
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Written by
Allison Martin’s career began more than 10 years ago as a digital media strategist. Since then, she’s been featured in a variety of top financial publications 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 values clear reporting that helps readers easily land deals and make the best choices for their money. He specializes in auto and small business loans.
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