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9 common car leasing traps that you should avoid Part Of Leasing a Vehicle In this series Leasing a Vehicle







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6 minutes read. published May 5, 2022.
Writen by Jackie Lam Written by Contributing writer

Jackie Lam is a contributing writer for Bankrate. Jackie is a writer on auto loans.







Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances by providing concise, well-studied information that breaks down complicated topics into manageable bites.









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Leasing a car may seem an ideal option at first blush However, leases often are accompanied by a myriad of caveats and pitfalls that the drawbacks outweigh any benefits associated with the arrangement. If you're thinking of leasing a car instead of owning you should still be cautious about the risks you're taking. In contrast to owning a car that you can sell at any time, leasing leaves you with legal binding contract- and you'd need to hold onto the car until your term ends. Here are the nine traps you could fall into while leasing an automobile. 1. Potentially expensive mileage restrictions Many leases include a cap on the number of miles you can put on the car each year. To give you an example, U.S. drivers average around 13,500 miles per year, as per the Federal Highway Administration. Certain leases for cars, particularly those touting low monthly payments with annual mileage caps of 10,000 miles or less as per Matt DeLorenzo, a senior managing editor at Kelley Blue Book. Depending on the type of car you're driving, expect to pay a mileage penalty that ranges from 10 cents to 25 cents for each mile in the event that you exceed your annual limit. The higher the price tag of the vehicle is, the greater the penalty. If the penalty is 25 cents per mile, and you exceed the cap by 3,000 miles per year, you're looking at an astronomical $750 in additional cost. The lesson to take away: If you're considering going the leased car approach, determine how many miles you travel on average every year to be sure you are aware of the amount leasing will be costing you when you exceed the limit on mileage. 2. Costs for early termination if you want to end your lease early it could be necessary to pay quite a bit to get out of the lease. It's contingent upon the terms of your lease and you may have to pay the difference between the amount that the car is depreciating and the amount you paid for it. In certain cases, this charge might be many thousand dollars. Say you're leasing the car for $40,000. In the course of three years you've spent $18,000. However, the car has depreciated by $21,000. If that's your situation, you might have to pay for the difference between the amount you've paid for, $18,000, and the amount the vehicle has depreciated by, $21,000. This means you'd be in the pocket of $3,000. The early termination fees can include taxes as well as a fee , that helps to offset the costs for the lender to purchase the vehicle. The borrower is also responsible for paying off any late charges such as parking tickets or unpaid monthly installments. Make sure you read the fine print regarding early termination clauses, DeLorenzo recommends. "Find out exactly how much you'll be required to pay if your lease doesn't run to the end of its term," he says. 3. Low residual value The residual value is how much the car is worth at the end of your lease term. Let's suppose that the lender estimates that the car you're leasing right now could be valued at $15,000 in three years' time. The monthly payment will be calculated to compensate for that $15,000 loss in value, so a 36-month lease amounts in monthly payment of $416.67 which does not include interest or any taxes and fees. What is the residual value? It is the value agreed upon for the vehicle when the lease expires. The residual value also includes depreciation. 4. A price advertised that demands an enormous down payment. If you find a lease cost advertised as less than $200, make sure to do your homework and be aware of what you're getting into, DeLorenzo says. Most of the time, these low rates can translate into massive down payments. You should be aware of the amount you're required to pay in order to qualify for these low monthly payment. "A $5,000 upfront fee for a lease of four years increases by more than $100 the monthly amount advertised," DeLorenzo says. Takeaway: There is usually an issue if a lease has lower monthly payments: the down payment is substantial. 5. The monthly installments for purchasing vs. leasing Other dealers could be trying to lure you into a lease by comparing the monthly payment for each, and how much lower your payments would be if you went the leasing route. When you purchase the car, you will be able to own it at the end of your . When you lease, you must to return the vehicle. Takeaway: Don't be fooled when a dealer tries to compare apples to oranges, and then tell you how much more profitable it is to lease a car. 6. Doing nothing to reduce the cost of the car just because you are leasing does not mean you don't have to be concerned about the price tag of the vehicle. It's still important, since the amount you pay to lease the car is mostly contingent on the cost of the car and its depreciation rate. It is important to note that the price and the value of your vehicle are important when leasing. 7. Fees at the start and end of the lease Before you sign a lease, make sure you're aware of all the charges. This could include: Acquisition fee: Also called an administrative or bank fee it is a one-time fee that lenders charge to tie the lease together. The cost can range from $400-$900. License and sales taxes are not included in the monthly payment dependent on the state that you live in and the particular contract you signed, so make sure to read the small print. Price to buy out: When your lease ends you'll have the option to purchase the car in lieu of it being returned to your lender. End-of-lease fees If you choose to sell the vehicle to the lender, you'll be accountable for the payment of end-of-lease costs or an disposition fee. It could include inspection of the vehicle cleaning and reconditioning storage, transportation costs as well as administrative costs. Wear-and-tear charges: You may be charged for equipment that was lost or if the vehicle has wear and tear that is beyond the scope of the lease agreement. "Check for the specifics on what constitutes 'normal wear and tear' at lease expiration, and what your responsibility is for repairs or maintenance after lease end," DeLorenzo says. Takeaway: The cost of leasing a vehicle goes beyond the monthly installment. Examine all the expenses before signing the dotted line, which includes any that might come with breaking the lease's terms. 8. A longer lease to receive lower monthly payments Let's say you contact the lender to get your monthly payment down. They call back, letting know that lo and behold, they were able to lower your payments by extending the lease. In reality, you're not making any savings. Although a longer lease period could mean that you pay less every month, you'll also pay more interest during the lease. Beware: Don't get fooled by a smaller monthly payment due to an extended lease period. If the lender recommends extending the lease to pay for more interest, you'll be paying more in the end. 9. The money factor Although there is no APR when it comes to leasing a car, there are financing charges. They are referred to as the "money factor." The money factor functions like an interest rate, and is the determining factor for how much you'll pay in fees for financing. As you might expect, the higher the money factor, the higher you will have to pay. In contrast to interest rates and other factors, the money factor is calculated as a decimal. To determine what your finance charges are in percentage, multiply your money factor with 2,400. So, if your money factor is .0025, that's 6 percent. The lesson to remember: When you're looking for a lease for the car, inquire about what the price factor is. Next steps Protect yourself from falling into one of these traps of leasing cars by following these steps: Be aware of your needs: When deciding if a lease on a car is the best option for you, think about the number of miles you drive every year, the amount you are able to afford, and how leasing a vehicle is compatible with your needs in lifestyle, financial goals and lifestyle. Examine your credit score: Going over your credit file before accepting offers can aid you in gaining more leverage in negotiating the terms you prefer. Compare rates: To find the best rates, speak to different lenders about their terms based on your credit. You can negotiate what you want to however: While there are items that you aren't able to negotiate, such as the acquisition fee or values of residuals, it is possible to could be able to negotiate the disposal fee or the purchase price. Read the fine print There are hidden charges and limitations to the lease that may not be apparent while you're comparing options. Before you sign on to sign the contract, make sure to study the fine print. It is crucial to understand the process of leasing a car and being aware of costs, you can avoid the common lease traps, and also save money. In addition, you should be vigilant when it comes to leasing-related pitfalls to steer away from, it's recommended to plan to plan ahead to ensure that you go into the leasing department with confidence and knowledge. Find out more


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Written by a contributing writer

Jackie Lam is a contributing writer for Bankrate. Jackie is a writer on auto loans.



Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers to control their finances by providing concise, well-studied and well-informed data that can break otherwise complex subjects into digestible pieces.






Auto loans editor




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