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Key questions to ask when leasing

OK, you've decided a lease might be good for you. And you've hammered out a deal. But before you sign, make sure you know the answers to the following questions:

1. What is the amount due when I sign the lease?
It can be made up of payments like security deposit, titles fees, capitalized cost reduction, monthly payments paid at signing and registration fees.

2. How long is the lease?
It's common to find 24, 36, 48 and 60 months. But you will also find odd terms -- like 39 months. Make sure you keep track of your numbers; some odd-month deals may be designed to confuse you. A 39-month lease based on the 36-month residual value of the car will give you lower payments, but you'll pay more overall. And you might be driving for three months without a factory warranty so a major breakdown could cost you big time in repairs.

3. What happens at the end of the lease?
There are two kinds of leases: open-end and closed-end. The most common is the closed-end lease in which you return the car at the end of the lease, pay any costs due and walk away or buy the car at the residual value figure stated at the start of the lease. If the car is not worth the residual value figure at that point, you're not responsible as long as the car has normal wear and you haven't exceeded the mileage limits. The dealer is guessing that he will get back a vehicle worth money to him (the residual value), so he takes the risk (and maybe loses if he guesses wrong). That means you pay more for this type of deal.

Open-end leases are far less common. Sometimes called a finance lease, in this case you are doing the guessing. Your payments will be lower than a closed-end deal. In an open-end lease, the residual value is set, but it's only considered an estimate of the future value of the car -- hence open-ended. If at the end of the lease the car is not worth the estimated residual value, you pay the difference. Disagreements over that fair market value -- usually assessed by someone assigned to the job by the dealer -- can lead to some unwanted hassles.

In both cases, read all the small print. You may think you only have to pay certain charges at the end of a lease, but there is ample anecdotal evidence of people being surprised at additional end-of -lease payments. For example, did you agree to pay a "disposal fee,'' a payment you make when you give back the car? And be sure you understand exactly how the dealer decides what is "normal wear and tear'' and "excess wear,'' and get him to put it in writing. You can also re-lease the car (effectively leasing a used car with a whole new deal) or trade in any value left in it toward a new lease.

4. What is the free miles allowance and what happens after that?
Commonly, leases allow 12,000 or 15,000 miles before you trigger charges per mile (anywhere from 10 to 25 cents). Remember that the miles allowance is often negotiable!

5. What will gap insurance cost me?
This insurance will pay the difference between what you owe on your leased vehicle and what it is worth if it is wrecked or stolen. You can get it with the lease or ask your insurance company.

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