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9 common car leasing traps that you should avoid Part Of Leasing a Vehicle In this series Leasing a Vehicle







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6 min read The book was published on May 5, 2022.
The story was written by Jackie Lam Written by Contributing writer

Jackie Lam is a contributing writer for Bankrate. Jackie write about car loans.







Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain the confidence to take control of their finances with precise, well-researched and well-researched content that breaks down otherwise complex topics into manageable bites.









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A car lease may appear to be a great idea initially however, often leases have so many stipulations and risks that the disadvantages outweigh any benefits associated with the arrangement. Even if you're considering leasing a car rather than owning one, be aware of the terms you're signing. In contrast to owning a car that you can sell at any time, leasing leaves you with a legally binding agreement -which means you'll need to keep the car until your term ends. Here are nine traps you're at risk of falling into when leasing an automobile. 1. Potentially expensive mileage restrictions Most car leases come with a cap on the number of miles you can put on the vehicle each year. To give you an example, U.S. drivers average 13500 miles a year, as per the Federal Highway Administration. Certain leases for cars, particularly ones with low monthly installments and annual mileage limits of less than 10,000 miles according to Matt DeLorenzo, a senior managing editor at Kelley Blue Book. Based on the type of car you're driving, you should expect to pay a mileage penalty ranging between 10 and 25 cents per mile if you exceed your annual limit. The more expensive the cost of the vehicle and the more expensive the penalty. If the cost is $25 cents per mile and you exceed the cap by 3,000 miles per year, you're looking at an enormous $750 in added costs. Takeaway: If you are contemplating going down the lease car route, estimate how many miles you travel on average every year to be sure you are aware of how much it will run in the event that you exceed the limit on mileage. 2. Costs for early termination if you wish to end your lease early it could be necessary to pay a fair amount to be able to exit the contract. It is contingent on the lease terms however, you could have to pay for the difference between how much the car is depreciating and what you've already purchased it for. In certain cases, this charge might be many thousand dollars. For instance, suppose you lease a $40,000 car. After three years, you've paid $18,000. The car, however, has depreciated by 21,000. Should that be the case, you might be required to pay the difference between the amount you've paid for, $18,000 as well as the amount the vehicle has depreciated by, $21,000. This means you'd be on the hook for $3,000. Early termination costs could also include taxes and a , that helps to offset the costs to the lender to purchase the vehicle. The borrower is also responsible to pay any late charges such as parking tickets or remaining monthly payments. Takeaway: Read the fine print of early termination clauses that DeLorenzo suggests. "Find out precisely how much you'll have to pay in the event that the lease does not go to the end of its term," he says. 3. Low residual value. The residual value represents how much the car will be worth at the expiration of the lease. Let's suppose that the lender estimates that the car you're leasing right now is worth $15, 000 in three years' time. Your monthly payments will be calculated to cover the loss of $15,000 and so a lease for 36 months equates in monthly payment of $416.67 without interest or any taxes and fees. The residual value is the agreed-upon value of the car when the lease comes to an end. The residual value is inclusive of depreciation. 4. A price advertised that demands a huge down payment When you see a monthly lease payment advertised as being less than $200, make sure to do your homework and know what you are getting into, DeLorenzo says. Most of the time, these low rates equate to massive down payments. You will want to check how much you are being required to pay to be eligible for low monthly costs. "A $5,000 upfront cost for a lease of four years will add more than $100 to the monthly amount advertised," DeLorenzo says. It is common to find an issue if a lease has low monthly payments, namely the down payment is substantial. 5. The monthly payments for buying as opposed to. leasing Some dealerships might attempt to convince you to lease by comparing the monthly payment for the two, and how much less the monthly payment could be if you chose the leasing route. When you purchase the car, you will be able to own it at the end of your . When you lease, you must to return the car. Don't fall for it when a dealer tries to make comparisons between apples and oranges and explain how much more financially savvy leasing a car. 6. Not paying attention to the price of the car just because you are leasing does not mean you don't have to worry about the price tag of the car. It's still a matter of concern, as the cost you pay to lease it is largely contingent on the price of the car and its depreciation rate. Takeaway: The price tag and the value of your vehicle do matter when leasing. 7. Fees at the start and end of the lease. Before you sign a lease, make sure you're aware of all the charges. These might include: Acquisition fee: Also called an administrative fee or bank fee, this is a one-time fee that lenders charge to tie the lease together. The cost can range from $400-$900. Sales taxes and license fees are not included in your monthly installment dependent on the state that you reside in as well as the particular contract you signed, so make sure to read the specifics. Cost to buy-out when your lease is over you'll be able to buy the car in lieu of it being returned to your lender. Costs associated with the end of lease: If you decide to sell the vehicle to the lender, you'll be accountable to pay the end-of-lease charges which is also known as a disposition fee. This might include vehicle inspection cleaning and reconditioning, storage costs, transportation and administrative fees. Wear-and-tear charges: You may be charged for equipment that was lost or if the vehicle has wear and tear that is beyond what's covered in your lease contract. "Check out the specific language about what is considered normal wear and tear' at lease end, and what your responsibility is for any repairs or maintenance at lease end," DeLorenzo explains. What you should know is that the cost of leasing a car is beyond the monthly payment. Examine all the costs involved before signing on to the contract, including any that might come with breaching the terms of the lease. 8. A longer lease to receive an affordable monthly installment Let's say you talk to the lender to get your monthly installments reduced. They respond, letting you know that lo and behold they could reduce your monthly payments by prolonging the lease. In reality, you're not saving any money. While a lease with a longer term can mean you will pay less each month, you'll pay more interest during the lease. Beware: Don't get fooled by a lower monthly payment that comes with the longer lease duration. If the lender recommends extending the lease to pay for more interest, you'll be paying more over the long run. 9. The money element While there's no APR with regards to leasing a car however, there are finance charges. These are known as the "money factor." The money factor is a lot like an interest rate, and determines the amount you'll pay in finance charges. It is as you'd expect: the higher the money factor, the greater the amount you'll have to pay. Contrary to interest rates, the money factor is expressed in decimal. To figure out the cost of your financing in percentage, multiply your money factor with 2,400. For example, if your factor is .0025 6.5%, that's 6 percent. Takeaway: When shopping for a lease on an automobile, find out what the money factor is. Next steps Protect yourself from falling into these car leasing traps with these simple steps: Know your requirements: When making a decision on whether a lease for a car is the right choice for you, take into consideration the number of miles you drive each year, how much you are able to afford, and how leasing a car will fit in with your personal preferences in lifestyle, financial goals and lifestyle. Examine your credit score: Going through your credit history before accepting offers can give you more leverage to negotiate the terms you desire. Compare rates: To find the best rates, talk to different lenders regarding their terms and conditions in relation to your credit score. Negotiate what you can however: While there are items that you aren't able to discuss, such as the purchase fee and the values of residuals, it is possible to could possibly negotiate the disposition fee or the purchase price. Check the fine print carefully: There are hidden fees and limits to your lease which may not be disclosed while you're comparing options. Before you sign on to sign the contract, be certain to read the fine print. It is crucial to understand how leasing a car works and being aware of cost, you will be able to avoid the common rental traps to save yourself money. While also being alert to leasing pitfalls to steer clear of it is always wise to take the time to prepare ahead of time so you can go into the leasing department with confidence and understanding. Find out more


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Written by Contributing writer

Jackie Lam is a contributing writer for Bankrate. Jackie writes about auto loans.



The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping their readers to manage their finances through providing concise, well-studied and well-informed data that can break otherwise complex topics into manageable bites.






Auto loans editor




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