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When you lease
a car, you are basically renting the car for long-term use. An advantage
of leasing is lower monthly payments than financing the car with
a loan, plus you can lease a new car every 2 to 4 years. While
leasing offers a way for you to drive the new vehicle that you want
for less money, at the end of the lease you have no ownership in
the car. However, many leasing companies offer you the option of
purchasing the car at the end of the lease on favorable terms. To
help you decide whether leasing or buying (including financing with
a loan) is right for you, see Buy or
Lease?
As with any
major purchase, the key to successful car leasing is to know how
leasing works and to be prepared. You shop for a car to lease in
the same way you shop for a new car to buy (see
New
Car Shopping).
The process is similar even through negotiating the price of the
car. Once you agree with the dealer on the car price, then it's
time to discuss leasing or financing. Many experts suggest that
you do not even mention your interest in leasing until after you
have finished negotiating the price of the car.
Compare lease
offers and be prepared to negotiate a lease that best fits your
needs, budget and driving patterns. Lease agreements are more complicated
than new-car purchase loans. You will need to be well prepared and
take greater care to negotiate a good, fair lease agreement.
Understanding
the Terms of the Lease
- For a glossary
of lease terms and definitions, see Glossary
of Leasing Terms.
- New rules
under the Consumer Leasing Act require leasing companies to disclose
information about costs and terms of a vehicle lease to you, the
customer. In addition to the information given on the consumer-guide
form, you will want to ask for an itemized list of the "capitalized
cost", or sales price of the car.
- Ask about
standards for wear and use. Dings or dents that you may regard
as normal wear and tear may be billed as significant damage at
the end of your lease.
- Ask the dealer
to give you an example of the early termination charges, for example,
if the car is damaged beyond repair six months after the lease
is signed. Expect to pay a substantial charge if you give the
car up before the end of your lease. Most leases allow you to
drive 12,000 to 15,000 miles a year. Expect a charge of 10 to
25 cents for each additional mile.
- Make sure
the manufacturer's warranty covers the entire lease term and the
number of miles you are likely to drive.
- Make sure
you get every item of equipment listed on the lease. Otherwise,
you could be charged for "missing" equipment at the end of the
lease.
- You do not
have an automatic three-day right to cancel a lease after you
sign it. So, before you sign the deal, take a copy of the contract
home and review it carefully away from any dealer pressure. Be
alert for any charges that were not disclosed at the dealership,
like conveyance, disposition, and preparation fees. Make sure
you received credit for any trade-in.
Know
Your Rights and Responsibilities
When you lease
a vehicle, you have the right to:
- Use it for
an agreed-upon number of months and miles.
- Turn it in
at lease end, pay any end-of-lease fees and charges, and "walk
away" .
- Buy the vehicle
if you have a purchase option.
- Take advantage
of any warranties, recalls, or other services that apply to the
vehicle.
You may be responsible
for:
- Excess mileage
charges when you return the vehicle. Your lease agreement will
tell you how many miles you can drive before you must pay for
extra miles and how much the per-mile charge will be.
- Excess wear
and tear when you return the vehicle. The standards for excess
wear, such as for body damage or worn tires, are in your lease
agreement.
- Substantial
payments if you end the lease early. The earlier you end the lease,
the greater these charges are likely to be.
Be
Aware of Beginning, Middle, and End-of-Lease Costs
- At the beginning
of the lease, you may have to pay your first monthly payment;
a refundable security deposit or your last monthly payment; other
fees for licenses, registration, and title; a capitalized cost
reduction (like a down payment); an acquisition fee (also called
a processing or assignment fee); freight or destination charges;
and state or local taxes.
- During the
lease, you will have to pay your monthly payment; any additional
taxes not included in the payment such as sales, use, and personal
property taxes; Insurance premiums; ongoing maintenance costs;
and any fees for late payment. You will also have to pay for safety
and emissions inspections and any traffic tickets. If you end
your lease early, you may have to pay substantial early termination
charges.
- At the end
of the lease, if you do not buy the vehicle, you may have to pay
a disposition fee and charges for excess miles and excess wear.
Also, be aware
that "Lease rates" or "money factors" do not have standardized definitions
and are not equivalent to an APR. Unlike when you finance a car
and the finance charge must be stated as an Annual Percentage Rate
(APR), there is no similar requirement for disclosing the cost of
leases.
Comparing
Different Lease Options
Take time to
check out different leasing options. Here is a list of negotiable
items:
- The agreed-upon
value of the vehicle (a lower value can reduce your monthly payment)
- Up-front
payments, including the capitalized cost reduction
- The length
of the lease
- The monthly
lease payment
- Any end-of-lease
fees and charges
- The mileage
allowed and per-mile charges for excess miles
- The option
to purchase either at lease end or earlier
- Whether your
lease includes "gap" coverage, which protects you if
the vehicle is stolen or destroyed in an accident.
- Advertised
specials and other lease offerings.
For
More Information on Leasing
Contact your
dealer, manufacturer, leasing company, or financial institution
for more information. Some websites, such as Edmund's,
also offer practical information and tips. The federal Consumer
Leasing Act and some state laws may provide you with additional
consumer rights not covered in your lease agreement. For information
on these laws, contact your State's consumer protection agency or
Attorney General's office. You also can contact:
Division of
Consumer & Community Affairs
Mail
Stop 800
Federal
Reserve Board
Washington,
DC 20551
Consumer
Response Center
Federal
Trade Commission
6th
and Pennsylvania Ave., NW
Washington,
DC 20580
 
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