Leasing a car lets you rent a vehicle for a few years without the obligation to purchase it, so it’s a great way to get a new set of wheels while not having to fully commit financially. It’s a particularly good option for drivers who clock in less than 15,000 miles a year and won’t risk hitting any mileage overages. But leasing can be complicated, so to get the best deal, you should come to the table prepared with a few questions.
9 questions to ask before leasing a car
If you’re thinking of leasing a car, don’t jump at the first offer you see. Set yourself up for success by asking these questions first.
1. What is the amount due when I sign the lease?
Before signing a lease, you should receive a detailed written statement of everything that you must pay or may have to pay. Upfront payments could include a security deposit, title fees, capitalized cost reduction, monthly payments paid at signing and registration fees.
Knowing the amount due when signing off on the lease is integral to not overspending. Plus, knowing the price breakdown of all extra fees can help you to better negotiate.
2. How long is the lease?
The leasing company will tell you how many payments the lease includes, how much each payment will be and when the payments are due. The most common lease terms are 24, 36, 48 and 60 months — but you may also find odd terms, like 39 months. Some odd-month deals may be designed to confuse you.
When looking through the lease options, keep in mind that a longer lease offers lower monthly payments, but you will pay more overall.
3. What type of lease am I signing and what happens after it ends?
There are two kinds of leases: open-end and closed-end. In a closed-end lease, the leasing company sets a total price based on their estimate of the depreciated value of the vehicle. Even if your vehicle depreciates more than expected over the course of a closed-end lease, the only extra costs you are responsible for are excess mileage fees and wear-and-tear fees. This is the most common type of lease.
In an open-end or finance lease, you will have to pay the difference between the car’s residual value and its actual value at the end of the lease. If the car depreciates more than expected, you may be left with a hefty charge at the end of the lease.
In both cases, read the fine print so you are not surprised by any additional end-of-lease payments.
4. What is the residual value of the vehicle?
A vehicle’s residual value is the value it is estimated to hold at the end of the lease. The residual value is determined by the leasing company, though you can get an estimate on Kelley Blue Book. Knowing this number is helpful because it is a key factor in determining your monthly payments. The higher the residual value compared to the car’s original cost, the lower your monthly payment will be.
For instance, if your car is worth $20,000 and it is expected that it will be worth $15,000 at the end of the lease, you will have a lower payment than if you choose a $20,000 car that is expected to be worth $10,000 at the end of the lease. In the second scenario, the lessor needs to recoup a larger percentage of the car’s lost value and will therefore charge you more.
5. Will there be a wear-and-tear assessment?
Leasing laws require that you be told whether wear and tear will be assessed when returning the vehicle — and, more specifically, what that assessment is based on. At the end of your lease, the car will be examined for exterior damage like scratches, dents and windshield cracks, plus interior damage like stains. You will be charged for any excessive damage, though you won’t have to pay for the inspection itself.
The law also says that wear-and-tear standards must be reasonable. The standards are based on both the number of miles that you drove, and any damage done to the vehicle. If you have some superficial damage to your vehicle, it may be worth it to pay for touch-ups before your assessment.
6. What is the money factor?
The “money factor” is the cost of the money you are putting into the vehicle — an equivalent to the interest rate you would pay on a new car. It will usually be represented as a small decimal but multiplying it by 2,400 will give you an indication of the annual percentage rate you are paying for the lease.
If you are presented with a lease fee that is represented as a decimal, ask whether it is the money factor or the APR; many people wrongly assume that the money factor is the interest they will pay, when in reality their interest rate is much higher.
Your money factor is largely determined by your credit score, so improve your score before heading into the leasing office. You rarely can negotiate this number because it is typically set by lending institutions.
7. What is the lease mileage allowance and what happens when I exceed it?
A lease mileage allowance is the mileage you are allowed to drive during your lease without facing additional charges. Drivers can typically expect leases that allow 12,000 or 15,000 miles before fees kick in. Excess mileage fees can range anywhere from 10 to 25 cents per mile, which can seem small but adds up quickly.
Understand in advance what your mileage allowance is and try to anticipate what your driving habits will be during your lease, as any long road trips might cost you. Although the miles allowance is often a negotiable number, changing it will impact your payment.
8. What happens if I can’t make a lease payment?
Although few expect circumstances that cause them to fall behind on lease payments, it is important to understand what could happen if you do miss a payment. Typically, a default occurs if you fail to make three or more payments in a row.
Many times, not paying your lease will lead to additional fees and negatively affect your credit score, but every lessor handles this situation differently. Many companies have grace periods, which you should ask about before signing the lease.
It is also wise to ask about a worst-case scenario where you default. After a certain amount of time, the lessor can repossess the vehicle and, in many cases, charge you an early termination fee. Before signing, find out what that price would be.
9. Can the lease be extended?
You can usually request to extend your lease by a few months at the same price, though most lessors have a limit. Even if you are not sure whether you will need to extend your lease, understand whether extending it will change the terms of the original lease or bring potential new costs into play when you finally turn it in. Knowing these costs upfront can help you better plan when the end of your lease approaches.
Along with possible lease extensions, ask about termination fees. Companies must disclose under what circumstances the leasing company can demand their vehicle back or can change the terms of the deal.
Final considerations to keep in mind before leasing
Leasing a vehicle can be a good choice for drivers who are interested in testing out the newest vehicle options without investing in buying a car. Here are some of the pros and cons to keep in mind when considering a car lease.
- Leasing can be cost-effective. Drivers who don’t drive much, and thus won’t exceed a lease’s mileage limits, may find leasing to be a much more cost-effective option than purchasing a new car.
- You can get a new car every few years. If you like driving the latest vehicles with the newest technology, a lease allows you to upgrade every few years when your contract ends.
- Leasing involves restrictions you don’t have when buying a car. When leasing a vehicle, you will face limits on the miles traveled, and it’s even more important to keep the car in good condition or you will pay additional fees when the contract ends.
- You don’t build equity when you lease a vehicle. If you jump from lease to lease, you won’t be building any equity in a vehicle that you own.
Before heading to a dealer to ask leasing questions, reflect on your driving habits to see if leasing is right for you. Using a leasing versus buying calculator is a great starting point to see potential savings.
Leasing a vehicle is a big commitment, but it can pay off if you know what you’re getting into. Preparation is key, as is asking the right questions and reading the fine print of a lease agreement, in order to make sure you’re getting the best deal possible.