Leasing a Car: Getting Started

With the cost of cars today, you may consider financing or leasing your next car. If you do, here are some things to keep in mind.

Before you lease a car, determine how much you can afford. According to the Federal Trade Commission, look at your financial situation to make sure you have enough income to cover your monthly living expenses. You may want to use the “Make a Budget (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) ” worksheet as a guide.

Should you take on a new monthly payment? Finance or lease a car only when you can afford to take on a new payment. Saving for a down payment or trading in a car can reduce the amount you need to finance or lease, which then lowers your financing or leasing costs.

The most common type of auto lease is a closed-end lease. With a closed-end lease, you may return the vehicle at the end of the lease term, pay any end-of-lease costs, and walk away.

The best return for your money, is to try to lease a car soon after the model comes out.

Car with a price tag, symbolizing leasing or financing a car

What to Know Before You Lease or Finance a Car

Before deciding to lease or finance a car, check out the following tips.

  1. Mistakes to Avoid When Leasing a Car

    • Don’t put any money down, but if you do it should be no more than $2000.
    • Make sure you have GAP insurance. If a leased car is stolen or totaled and the car insurance company makes a payment for the value of the car, that sum may not cover the consumer's total obligation under the terms of the lease.  You may be obligated to pay the difference out of pocket.
    • Calculate your average mileage per year. Low monthly payments are usually because of low mileage limits.  It's common for leasing contracts to have a driving maximum of 10,000 miles to 15,000 miles per year.  If you exceed those limits, you could end up paying 10 cents to 30 cents per mile at the end of the lease, he says.
    • Scratches, Dents and Dings – Before signing the lease ask what the lease-end-condition guidelines are for the vehicle. Generally, if there is damage to the car, you will have a chance to have it fixed on your own dime before turning it in. Otherwise, the leasing company will assess a value to the damage.
    • Don’t lease to long. Most car-lease terms range from two to four years, though some can go longer. However, drivers who lease cars for too long could end up paying extra money in maintenance.  A good tip is to not lease cars for longer than the warranty period, which averages three years, or 36,000 miles.

  2. Consider All the Costs, Beginning to End

    Beginning

    At the beginning of the lease, you may have to pay your first monthly payment; a refundable security deposit or your last monthly payment; other fees for licenses, registration, and title; a capitalized cost reduction (like a down payment); an acquisition fee (also called a processing or assignment fee); freight or destination charges; and state or local taxes.

    During

    During the lease, you will have to pay your monthly payment; any additional taxes not included in the payment such as sales, use, and personal property taxes; insurance premiums; ongoing maintenance costs; and any fees for late payment. You'll also have to pay for safety and emissions inspections and any traffic tickets. If you end your lease early, you may have to pay substantial early termination charges.

    End At the end of the lease, if you don't buy the vehicle, you may have to pay a disposition fee and charges for excess miles and excessive wear.

    Compare and Negotiate

    1. The agreed-upon value of the vehicle--a lower value can reduce your monthly payment
    2. Up-front payments, including the capitalized cost reduction
    3. The length of the lease
    4. The monthly lease payment
    5. Any end-of-lease fees and charges
    6. The mileage allowed and per-mile charges for excess miles
    7. The option to purchase either at lease-end or earlier
    8. Whether your lease includes "gap" coverage, which protects you if the vehicle is stolen or totaled in an accident.

     Ask for alternatives to advertised specials and other lease offerings.

  3. Know Your Rights: Consumer Leasing Act

    Under the federal Consumer Leasing Act (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) , a consumer has the right to information about the costs and terms of a vehicle lease. This information will help you compare lease offers and negotiate a lease that best fits your needs, budget and driving patterns.

    When you lease a vehicle, you have the right to:

    • Use it for an agreed-upon number of months and miles
    • Turn it in at lease-end, pay any end-of-lease fees and charges, and "walk away"
    • Buy the vehicle if you have a purchase option
    • Take advantage of any warranties, recalls, or other services that apply to the vehicle.

  4. Unexpected Costs That Could Be Expensive

    You may be responsible for:

    • Excess mileage charges when you return the vehicle. Your lease agreement will tell you how many miles you can drive before you must pay for extra miles and how much the per-mile charge will be.
    • Excessive wear charges when you return the vehicle. The standards for excessive wear, such as for body damage or worn tires, are in your lease agreement.
    • Substantial payments if you end the lease early. The earlier you end the lease, the greater these charges are likely to be.

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