With consumers averaging seven years of vehicle ownership, leasing a vehicle is a popular alternative for drivers looking for shorter terms and more flexibility to upgrade. Leases are also seen as a more cost-effective choice because the payments are typically lower than purchasing, and you often don’t need to worry about a large down payment up front. However, these short-term investments can result in a long-term financial strain if you don’t know what to look out for.
Pay now or pay later
Bankrate’s Michael Pearl recommends that you pay no more than $2,000 up front when you lease. While you may feel obligated to pay more initially, it could cost you more down the line if your car is wrecked or stolen. In these unpredictable events, the insurance company reimburses the leasing company for the car’s value, but your money is less likely to be refunded.
Make your payments on time
The idea of being timely with your payments should go without saying, but it also bears repeating because of the impact a late payment can cause. As you make monthly payments, keep in mind that one missed payment can result in a hefty penalty. To avoid these fees, set up a reoccurring payment or, if you prefer to do it manually, create a calendar reminder. If you miss a payment, you may lose your security deposit or suffer other costs when the vehicle is repossessed.
Stick to three-year leases
You might see 39-month leases advertised at your local car dealer and think that the extra three months may be in some way advantageous to your needs. However, Pearl recommends that you stick to the traditional 36-month lease. Leasing in excess of three years can lead to larger maintenance and repair bills after the manufacturer’s warranty expires. Keeping your vehicle for an additional three months means you will likely have to purchase an extended warranty to keep yourself covered.
File your miles and maintenance
Be mindful of the maximum miles per year the dealership allows on your lease. According to CNBC’s Sarah O’Brien, you could pay anywhere from 15 cents to 25 cents at the end of a lease for each mile over the limit. You will also pay out of pocket for any damage or excessive wear and tear done to the interior and exterior of your car. The meaning of wear and tear will differ by dealership, so it is important to ask about this before you sign the lease. Before returning the vehicle, getting any damage fixed ahead of time out of pocket may save you money on fees.
Buy at the end of your lease
Your daily commute may accumulate more miles than the agreement permits, or your vehicle might have deterioration you don’t want to fix. If this is the case, consider buying your leased car once your term is up. Purchasing the vehicle at the end of the lease will steer you clear of these fees altogether as well as a disposition fee — money used to clean the vehicle at the end of a lease — that can be as much as $400.
Read your contract
In addition to the disposition fee, be aware of a few other numbers when you are near the end of your lease. These numbers include the car’s residual value and the purchase option fee. Like the previous numbers discussed, these are also on your contract. To ensure that you and your dealer are on the same page, bring your contract in with you on the day you return your leased vehicle.
Follow these tips and you will avoid leasing costs you do not want to pay. Leasing is a driver-friendly alternative to financing, so make every effort to ensure that it’s comprehensively better for your needs.