Getting a new car is always an exciting time, but it can also feel a little overwhelming. And this is especially so if you are looking to lease a car for the first time.
Today we are talking about the must-ask questions of car leases. But before we get to those, let’s talk about how car leases work.
When you lease a car, you are essentially renting the car. The monthly payments are based on the projected depreciation of the car over the time that you are using it. Since you are not buying the car, you do not have equity at the end of the lease term. Instead you have to either return the car or look into a lease buyout.
There are a lot of positives and negatives when it comes to leasing a car. On one hand, you do not own the car outright so a lot of the maintenance and repairs that come with car ownership will be handled by the dealership. But on the other hand, since it’s not your car, you are not able to customize the car, sell it, or drive it as freely as you may like.
Leases can vary greatly from dealership to dealership and from car to car.
Here are the top three questions you should ask when looking to lease a car.
How Long is the Car Lease?
A major variable in car leases is the length of the lease. A typical car lease is three or four years, but can vary between two and five years. You want the lease period to be as long as or less than the warranty period. This way if something goes wrong while you are leasing it, it will be covered by the warranty. If your warranty expires before your car lease has ended, you will be on the hook for the repairs (which can be quite costly).
If you are interested in a longer car lease, you are probably better off buying the car. In that case, even if you are paying for repairs and maintenance, you have an asset that you can use for years after the payments end (or you can always sell it).
How Many Miles Does The Lease of the Car Include (And What Happens When I Go Over)?
Another big question to ask is about the mileage limit on your lease. Car leases always have mileage limits, such as 10,000 or 12,000 miles per year. If you happen to go over that limit, it can mean hefty fines. Most leases have fees of 15 cents to 20 cents per mile over. So if you drive a lot, you are going to pay a lot in overage fees. For example, if you drive 15,000 miles per year every year for your three year lease period, and your mileage limit is 12,000, you could be paying $1,800 in overage fees at the end of your lease.
Leasing a car is not for everyone. If you are someone who drives a lot, leasing might not be a practical option.
If you are already leasing a car and have gone over the mileage limits (or know you are going to exceed the allotted mileage), it might be worth considering an auto lease buyout. You could save yourself a lot in overage fees and own the car instead.
What Other Fees Does The Car Lease Have?
On top of the mileage fees, you should be aware of other fees that may be in the lease. In fact, car leases tend to be full of hidden costs. What are often advertised as car lease deals usually don’t include the fees, fees which can add up substantially. You want to read your lease agreement very carefully and be sure to clarify any sticking points with the dealer. Here are some additional fees that you can expect.
The Drive-Off Fees
The drive-off fees are the upfront costs of your lease. This is a combination of the down payment and any additional fees, such as registration fees. When you buy a car, you want to put a lot of money down upfront to offset your monthly payments. But this is NOT the case when it comes to leasing. In fact, you want to put as little money down in the beginning as possible. The way that lease payments are constructed, you do not save a lot of money by paying more upfront. And if your car were to be totaled, there’s no guarantee that you would get that money back (unless you purchase GAP insurance, which is always a good idea with leases).
The Wear and Tear Fees
What does the dealer charge you for wear and tear? When you return the car at the end of the lease period, there is some leeway for the condition of the car. A few slight scratches or stains can be expected after a three or four year car lease. But if there is anything that they deem beyond the normal realm of wear and tear, they might charge you a good deal. Ask about their wear and tear policy before you sign on the dotted line.
The Administrative Fee
Dealers can hit you not once, but twice with an administrative fee. They often charge you an administrative fee when you initially lease the car, and then again when you return the car. And this fee commonly runs between $500 and $750 each time.
The Termination Fee
If you need to end your lease early for any reason, there is most likely a hefty termination fee. Be sure that you are comfortable with this fee amount – you never know when an emergency will pop up and you’ll need to end your lease for one reason or another.
The Security Deposit
Many dealerships will have you put down a security deposit on your lease. This is intended to cover the excessive wear and tear. You may get it back, or you may not. Dealerships can make a good argument to keep the security deposit even if your car is in pretty good condition.
And those are the top three questions you should ask when leasing a car.
Leasing a car can be a great option for some people, and not a great option for other people. Look carefully at your driving habits before signing any lease agreements, and be sure to read all of the fine print when it comes to fees and hidden costs.
If you have a car lease and are interested in buying your lease, Auto Approve can help! Contact us today to see how we can help you with an auto lease purchase.
