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9 common car leasing traps that you should stay clear of in Part Of leasing a Vehicle In this series Leasing a Vehicle







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

Jackie Lam is a contributing writer for Bankrate. Jackie is a writer on auto loans.







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

Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain confidence to control their finances with concise, well-studied information that breaks down otherwise complex subjects into digestible chunks.









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The idea of leasing a car might seem like a good idea at first blush However, leases often come with so many caveats and pitfalls that the drawbacks exceed the benefits of the deal. Even if you're considering leasing a car instead owning you should still be vigilant about the terms you're signing. In contrast to owning a car which you could trade in if you'd like the opportunity to do so, leasing comes with legal binding contractand you'll have to hold onto the car until the lease expires. Here are nine traps you could fall into while leasing the car. 1. Potentially expensive mileage restrictions Most car leases come with a cap on the number of miles you can put on your car every year. To give you an example, U.S. drivers average about 13,500 miles per year, according to the Federal Highway Administration. Certain car leases, specifically those touting low monthly payments, include annual mileage caps that are less than 10,000 miles according to Matt DeLorenzo, a senior managing editor at Kelley Blue Book. The type of vehicle you are driving, expect to be charged a penalty that ranges from 10 cents to 25 cents per mile if you go over the annual limit. The higher the price tag of the vehicle is, the greater the fine. If the fine is 25 cents for each mile and you go over the limit by 3,000 miles in a year, you'll pay an astronomical $750 in additional cost. The lesson to take away: If you're thinking of going down the lease approach, determine how many miles you average per year to be sure you know how much leasing will be costing you when you exceed the limit of mileage. 2. Early termination fees If you decide to terminate your lease earlier, you might have to pay quite a bit to end the agreement. It's contingent upon the lease terms and you may be required to pay the difference between the amount the car is depreciating and what you've already spent on it. In some instances the cost could be many thousand dollars. Say you're leasing a $40,000 car. Within three years, the car has paid $18,000. The car, however, has depreciated by $21,000. If this is your situation, you could have to pay for the difference between what you've paid for, $18,000, and the amount the car depreciated $21,000. So, you'll be on the hook for the sum of $3,000. Early termination costs could also comprise taxes and a which helps offset the cost for the lender to let the vehicle go. You will also be responsible for the payment of any late charges such as parking tickets or remaining monthly payments. Be sure to read the fine print regarding early termination clauses, DeLorenzo recommends. "Find out exactly how much you'll need to pay if the lease does not go to its end," he says. 3. Low residual value. The residual value represents what the car will be worth at the conclusion of your lease. Let's say that the lender thinks that the car you're leasing today could be valued at $15,000 within three years. The monthly payment will be calculated to cover that $15,000 loss in value and so a lease for 36 months is equivalent in monthly payment of $416.67, not including fees or taxes. fees. Takeaway: Residual value is the value agreed upon for the car when the lease expires. The residual value also includes depreciation. 4. A price advertised that demands an enormous down payment. If you see a monthly lease that is advertised at less than $200, make certain to research and know what you are being enticed by, says DeLorenzo. In most cases, these prices are equivalent to huge down costs. It is important to know what amount you're asked to put down in order to qualify for low monthly payments. "A $5,000 upfront charge for a lease of four years adds more than $100 to the advertised monthly payment," DeLorenzo says. The lesson: There's usually a catch if a lease comes with low monthly payments: an enormous down payment. 5. The monthly installments for purchasing vs. leasing Some dealers may try to entice you to lease by comparing monthly payments for the two, and how much lower the monthly payment could be if you chose the leasing option. Remember: when you buy an automobile, you are entitled to keep it until the end of your . If you lease, you have to return the vehicle. Don't fall for it when dealers try to contrast apples with oranges and explain how much more financially savvy leasing an automobile. 6. Not paying attention to the price of the vehicle Just that you lease does not mean that you do not need to think about the cost of the vehicle. It's still important, since what you are paying to lease the car is mostly contingent on the price of the car and the rate of depreciation. It is important to note that the price and the value of your vehicle are important when leasing. 7. The fees at the beginning and end of the lease Before signing a lease be sure you're aware of all charges. These might include: Acquisition fee: Also known as an administrative or bank fee it is a one-time cost that lenders have to pay to put the lease together. The cost can range from about $400 to $900. Taxes on sales and licenses: This might not be included in the monthly payment dependent on the state that you reside in and your particular contract you signed, so make sure to check the small print. The price to buy out If your lease expires you'll be able to buy the vehicle rather than returning the vehicle to its lender. End-of-lease charges: If you decide to sell the vehicle to the lender, you'll be accountable for the payment of end-of-lease costs which is also known as an disposition fee. It could include inspection of the vehicle cleaning and reconditioning, storage, transportation costs as well as administrative costs. Wear and tear fees: You could be charged for equipment that was lost or if your vehicle is damaged beyond the scope of the agreement to lease. "Check for the specifics about what is considered normal wear and tear' when lease expiration, and what is your obligation for any repairs or maintenance at lease end," DeLorenzo suggests. Takeaway: The cost of leasing a vehicle goes beyond the monthly payment. Review all of the costs involved before signing on the line 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 negotiate your monthly payments down. They return, letting you know that , as it turns out they were able to reduce your monthly payments by extension of the lease. The truth is you aren't making any savings. While a longer lease term may mean that you pay less every month, you'll incur more interest throughout the lease. Takeaway: Don't be fooled by a smaller monthly payment due to an extended lease duration. If the lender recommends extending the lease, you'll pay more interest in the end. 9. The money element While there's no APR in relation to leasing a car, there are financing charges. These are known as the "money factor." The money factor functions like an interest rate, and it determines how much you will pay in financing charges. As you might expect, the higher the amount of money factor, the higher you'll have to pay. Unlike interest rates that are based on the money factor, it is calculated in decimal. To determine the amount of your financial charges as a percentage, multiple 2400 times the amount of money you have to pay by. So, if your money factor is .0025 which is 6 percent, you'll get 6 percent. The lesson to remember: When you're looking for a lease on the car, inquire about what the money factor is. The next step is to protect yourself from stumbling into one of these traps of leasing cars by following these simple steps: Know your requirements: Before deciding whether a car lease is the right choice for you, take into consideration how many miles you drive every year, what you can afford, and how leasing a car would fit with your preferences in lifestyle, financial goals and lifestyle. Examine your credit score: Going at your credit report prior to receiving offers could aid you in gaining more leverage when negotiating the terms you prefer. Find a comparison: To get the best rates, speak to different lenders regarding their terms, based on your credit. You can negotiate what you want to however: While there are items you cannot discuss, such as the acquisition fee or residual value, you may possibly negotiate the disposition fee or buyout price. Be sure to read the fine print There may be hidden charges and lease limitations which may not be disclosed when you're shopping around. Before signing on your dotted line be certain to read the fine print. The key is understanding how leasing a car works and knowing the expenses, you can steer clear of common rental traps to save yourself money. While also being vigilant when it comes to leasing issues to stay away from, it's wise to take the time to ahead of time to ensure that you go into the leasing department with confidence and knowledge. Find out more


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Written by a contributing writer

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



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

Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers feel confident to manage their finances by providing concise, well-studied and well-informed data that can break complex topics into manageable bites.






Auto loans editor




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