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9 traps in car leasing that you should stay clear of in Part Of leasing a Vehicle In this series Leasing a Vehicle







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6 min 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.







The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain confidence to manage their finances by providing concise, well-studied information that breaks down otherwise complex subjects into bite-sized pieces.









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The idea of leasing a car might seem like a good idea initially, but often leases are accompanied by a myriad of caveats and pitfalls that the drawbacks exceed the benefits of the agreement. Even if you're considering leasing a car rather than owning one, be aware of the terms you're signing. In contrast to owning a car which you could trade in at any time the opportunity to do so, leasing comes with an legally binding agreementand you'll have to hold onto the car until the lease ends. Here are the nine traps you could fall into while leasing the car. 1. The potential for expensive mileage limitations The majority of leases have a cap on the number of miles you can drive on the vehicle each year. To give you an example, U.S. drivers average about 13,500 miles per year, as per the Federal Highway Administration. Certain leases for cars, particularly ones that offer low monthly payments, include annual mileage caps of less than 10,000 miles, says Matt DeLorenzo, a senior managing editor at Kelley Blue Book. Based on the type of vehicle you are driving, expect to be charged a penalty of anywhere from 10 cents to 25 cents per mile when you go over your annual limit. The higher the price tag of the vehicle, the higher the penalty. If the penalty is 25 cents per mile, and you exceed the cap by 3,000 miles in a year, you'll pay an enormous $750 in added expenses. Takeaway: If you are contemplating going down the lease car option, calculate the number of miles you average per year to ensure 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 decide to terminate your lease earlier, you might have to pay a pretty penny to get out of the contract. It depends on the terms of your lease however, you could have to pay the difference between how much the car is depreciating and what you've already paid for it. In certain cases the cost could be several thousand dollars. Let's say you're leasing the car for $40,000. Within three years, the car has spent $18,000. However, the car has depreciated by $21,000. If this is your situation, you may be required to pay the difference between what you've already paid, which is $18,000 as well as the amount the car depreciated $21,000. So, you'll be on the hook for the sum of $3,000. Early termination costs can also include taxes and a , which helps offset the cost to the lender to let the vehicle go. Additionally, you will be accountable for the payment of any late fees such as parking tickets or remaining monthly payments. Be sure to read the fine print of early termination clauses that DeLorenzo recommends. "Find out precisely how much you'll need to pay if the lease does not go to its end," he says. 3. Low residual value. The residual value represents how much the car will be worth at the expiration of the lease. Let's say that the lender believes that the car you're leasing now could be valued at $15,000 within three years. Your monthly payments will be calculated to cover that $15,000 loss in value and a lease of 36 months amounts in monthly payment of $416.67 which does not include the interest, taxes or fees. The residual value is the agreed-upon value for the car when the lease comes to an end. The residual value also includes depreciation. 4. An advertised price that requires the payment of a large down-payment. If you find a lease that is advertised at below $200, be sure to do your homework and understand what you're being enticed by, says DeLorenzo. Often, these low prices can translate into massive down payment. You should be aware of how much you are being required to pay to be eligible for low monthly payment. "A $5,000 upfront cost for a lease of four years will add more than $100 to the advertised monthly payment," DeLorenzo says. It is common to find an issue if a lease comes with low monthly payments, namely the down payment is substantial. 5. The monthly payment for purchasing vs. leasing Some dealers might attempt to convince you to lease by comparing monthly payments for each, and what the monthly payment will be if you choose the leasing route. Rememberthat when you purchase the car, you will be able to keep it until the end of your . With leasing, you need to return the vehicle. Don't fall for it by dealers who try to make comparisons between apples and oranges, and then tell you how much more financially savvy leasing an automobile. 6. Not paying attention to the price of the car Just because you are leasing does not mean that you do not need to think about the price tag of the car. It's still a matter of concern, as the cost you pay to lease it largely depends on the price of the vehicle and its depreciation rate. What you should take away is that the price and worth of your vehicle are important when leasing. 7. Fees at the beginning and end of the lease. Before you sign a lease, be certain you are aware of the charges. This could include: Acquisition fee: Also called an administrative fee or bank fee This is a once-off cost that lenders have to pay to set up the lease. The amount could range from $400-$900. Taxes on sales and licenses may not be included in the monthly payment based on the state you reside in and your individual contract, so be sure to review the small print. Cost to buy-out If your lease expires, you will have the option to purchase the car rather than returning the vehicle to its lender. End-of-lease fees: If you decide to return the car to the lender, you'll be accountable for the payment of end-of-lease costs or an disposition fee. This might include vehicle inspection cleaning and reconditioning storage, transportation , and administrative charges. Wear-and-tear charges: You may be charged for lost equipment or if the vehicle has wear and tear that is beyond what's covered in your lease contract. "Check out the specific terms about what is considered normal wear and tear' at lease end, and what is your obligation for repairs or maintenance following lease termination," DeLorenzo suggests. It is important to note that the expense of leasing a car goes beyond the monthly payment. Check out all costs involved before signing on the dotted line, and that includes any that might come with breaching the lease's terms. 8. A longer-term lease that gives you lower monthly payments Let's say that you speak to the lender to negotiate your monthly installments reduced. They return, letting you that they have discovered that they were able to lower your payments by prolonging the lease. The truth is you aren't making any savings. While a lease with a longer term could mean that you pay less every month, you'll also pay more interest during the lease. Beware of being deceived by a smaller monthly payment due to an extended lease term. If the lender proposes to extend the lease to pay for more interest, you'll be paying more in the end. 9. The money element While there's no APR with regards to a lease on a car, there are financing charges. They are referred to as the "money factor." The money factor is a lot like an interest rate and it determines how much you will pay in financing charges. It is as you'd expect: the higher the money factor, the greater the amount you'll have to pay. In contrast to interest rates and other factors, the money factor is expressed as a decimal. To figure out the cost of your financing as a percentage, multiple your money factor with 2,400. If your money factor is .0025 which is 6 percent, you'll get 6 percent. The lesson to remember: When you're looking for a lease deal on the car, inquire about what the money factor is. Next steps Protect yourself from stumbling into one of these car leasing traps by following these simple steps: Know your requirements: Before making a decision on whether a lease for a car is right for you, consider the amount of miles you travel every year, the amount you can reasonably afford and whether leasing a car is compatible with your needs, lifestyle and financial goals. Examine your credit score: Going at your credit report prior to receiving offers could aid you in gaining more leverage in negotiating the terms you prefer. Find a comparison: To get the best rates, speak with different lenders regarding their terms, in relation to your credit score. Negotiate what you can however: While there are things you can't negotiate, such as the purchase fee and the values of residuals, it is possible to can potentially negotiate the disposition fee or the buyout price. Check the fine print carefully There may be hidden charges and limitations to the lease that might not be revealed when you're looking around. Before signing on the dotted line, be sure to study the specifics. The key is understanding the mechanics of leasing a car and knowing the cost, you will be able to avoid typical leasing traps and save money. While also being alert to leasing-related pitfalls to steer away from it is wise to take the time to prepare ahead of time to ensure that you walk into the leasing office with knowledge and confidence. Learn more


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Written by the writer who contributed to the article.

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 since the end of 2021. They are dedicated to helping their readers to manage their finances through providing clear, well-researched information that breaks down complicated topics into bite-sized pieces.






Auto loans editor




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