Keys to leasing

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Leasing isn’t a magic shortcut to a great car deal. For some people, it makes solid sense; for others, it can be a money trap.

The leasing boom of the 1990s became the leasing headache a few years later for people who suddenly found they were facing huge charges for mileage overruns or damage to the vehicle.

Nonetheless, leasing can be a good move if you’re someone who wants the very latest make, drives fewer than 12,000 to 15,000 miles a year — the standard limits in most leases — and treats it with kid gloves. Leasing generally offers lower monthly payments or allows a customer to drive an upscale car for what they might pay for a basic sedan.

Keys to a good deal

Knowledge and strategy are the keys to negotiating a good leasing deal.

Ignorance — not knowing terminology or how the lease works, or not being told all of those details by the dealer or lease company — is the main factor in paying too much for a lease. In Florida alone, the state attorney general’s office has identified 40 types of fraud in leasing. Most rely on customer ignorance to work.

State attorneys general, consumer groups and lawyers claim that an uninformed would-be leaser could be hurt by as much as $4,000 in a single lease. This Bankrate article will help you avoid leasing pitfalls.

One thing to keep in mind: A lot of drivers pay thousands more to lease the same car they went in to buy. Commonly, these buyers are talked into a lease without understanding all the details. To find out if leasing makes the most financial sense for you, use Bankrate’s interactive calculator.

Leasing gives dealers more places to give and take than buying does. Make sure you are perfectly clear on every step along the way and know exactly what you are paying, when and for what, before you sign a lease.

Residual value

What you are doing in a lease is paying for the difference between the value of the car brand new on the showroom floor and the amount the dealer predicts it will be worth when you bring it back at the end of the lease; this is called the residual value. Call the bank or dealer to find the residual value. Most cars have a residual value of between 50 and 58 percent for a 36-month lease.

Capitalized cost

The capitalized cost is not so easy to get a handle on. The dealer sets the figure and often establishes it at the MSRP. However, that doesn’t mean you have to accept that as the final figure. Just as you can usually negotiate down the MSRP in a purchase, you can negotiate down the capitalized cost in a lease situation.

The capitalized cost should also be reduced by any trade-in, down payment or a manufacturer’s rebate. It can be increased if you trade in a car that you owe a balance on or by acquisition fees charged to obtain the loan.

But beware: The dealer can set the capitalized cost higher than the MSRP. This may happen when you’re trying to lease a car that is a particularly fast-selling model, just as they place a premium price (over MSRP) on hard-to-get models. If you see the capitalized cost is higher than the MSRP on the car, you should know why and think twice about the deal.

You should also use the capitalized cost figure for comparison-shopping lease deals from different dealers. But that’s not the only basic question to have answered with complete clarity when you bargain.

Remember that a lot of numbers have to line up, just like buying. No down payment is fine, but that saving will probably be balanced out in the costs somewhere else in the lease. So perhaps a down payment and a different lease length or better mileage allowance would be a better deal for you.

When the lease is up

Your lease may allow you to purchase the vehicle when the lease is up. Find out what the costs would be (it is usually the residual value stated in the lease). That figure, plus your total costs from start to finish of the lease, will tell you what it will cost to own that car in three years (or whatever the lease term is) down the road.

Before you lease, consider whether you would buy the vehicle at the end of the lease. You may have no intention of doing it, but consider this “emergency planning” and know what it would cost, just in case. If the figure is outrageous, maybe you’re not looking at the best lease deal.

And always remember to read every single word and number in the lease — and be sure you understand them — before you sign anything.