auto

5 dumb car-leasing mistakes to avoid

Paying too much money upfront
Paying too much money upfront | Pressmaster/Shutterstock.com

Paying too much money upfront

Car dealers advertise low monthly lease payments on new autos, but consumers usually are asked to pay several thousand dollars at the beginning of the term to get the low payments, says Reed.

That money is generally used to pay a portion of the car lease in advance. "But prepaying is a problem if the car is wrecked or stolen in the first few months," says Reed.

If that were to happen, the insurance company would reimburse the leasing company for the value of the car, but the money the customer paid upfront would likely not be refunded, he says. As a result, the consumer wouldn’t have a car, after having paid a lot of money upfront.

Reed suggests that consumers not pay more than about $2,000 in advance. "In many cases, it makes sense to put nothing down," he says.

If you pay less in advance, your monthly payment would be higher. But you could take the "prepayment" cash and put it in an interest-bearing account instead.

You could use that money to help make the monthly lease payments, says Reed. And if something happens to the vehicle before the end of the term, at least the leasing company wouldn’t have a big chunk of your money.

FREE TOOL: Use Bankrate's calculator to figure out whether buying or leasing a car is cheaper for you.

advertisement

Show Bankrate's community sharing policy

Connect with us