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Paying too much money upfront
Dealers advertise low monthly car-lease payments on new autos, but consumers are usually asked to pay several thousand dollars at the start of the term to get the rock-bottom 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 probably not be refunded, he says. As a result, the consumer wouldn’t have a car, even though he or she spent a lot of money for the time period.
For that reason, 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.
With less money paid upfront, the monthly payment would be higher. But consumers could take the "prepayment" cash and put it in an interest-bearing account instead.
A lessee could then use the money to help make the monthly lease payments, says Reed. But should something happen to the vehicle before the end of the term, he or she wouldn't have to worry about the extra money being in the leasing company's possession.