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9 common car leasing traps that you must avoid in the process 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.







Edited by Rhys Subitch Edited by Auto loans editor

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









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Leasing a car may seem an ideal option at first glance, but often leases come with so many caveats and pitfalls that the drawbacks overshadow any advantages associated with the agreement. Even if you're considering leasing a car instead of owning you should still be cautious about the terms you're signing. In contrast to owning a car that you can sell if you'd like, leasing leaves you with a legally binding agreement -- and you'd need to hold onto the car until the lease expires. Here are the nine traps you could fall into while leasing the car. 1. The potential for expensive mileage limitations The majority of leases have limits on the number of miles you can drive on the vehicle each year. For reference, U.S. drivers average 13500 miles a year, according to the Federal Highway Administration. Certain car leases, specifically ones that offer low monthly payments with annual mileage caps that are less than 10,000 miles according to Matt DeLorenzo, a senior managing editor at Kelley Blue Book. Based on the kind of car you're driving, you can expect to pay a mileage penalty ranging between 10 cents and 25 cents per mile if you go over your 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 exceed the cap by 3,000 miles over a year, you'll be looking at a hefty $750 in added expenses. Takeaway: If you are thinking of going down the lease approach, determine how many miles you drive on average each year to be sure you know how much it will run you when you exceed the limit of mileage. 2. Early termination fees If you decide to terminate your lease earlier and you want to get out of the lease early, you may have to pay a pretty penny to end the lease. It's contingent upon the terms of your lease, but you might have to pay for the difference between how much the vehicle has depreciated in comparison to what you have already purchased it for. In some instances the cost could be thousands of dollars. Say you're leasing the car for $40,000. In the course of three years you've spent $18,000. But, the vehicle has been depreciated by $21,000. If this is your situation, you might be required to pay the difference between the amount you've already paid, which is $18,000 as well as the amount the vehicle has depreciated by, $21,000. This means you'd be responsible for $3,000. The early termination fees can include taxes and a , which can help offset the expense to the lender to sell the vehicle. You will also be responsible for the payment of any late fees or parking tickets, as well as any unpaid monthly installments. Be sure to read the fine print on early termination clauses, which DeLorenzo recommends. "Find out precisely how much you'll be required to pay if the lease does not go to its end," he says. 3. Low residual value. The residual value is how much the car will be worth at the end of your lease term. Let's say that the lender thinks that the car you're leasing today will be worth $15,000 within three years. Your monthly payments will be calculated to compensate for that $15,000 loss in value and so a lease for 36 months amounts to monthly payments of $416.67, not including interest or any taxes and fees. The residual value is the agreed-upon value of the car at the time the lease comes to an end. The residual value is inclusive of depreciation. 4. A advertised price that calls for a huge down payment When you see a monthly lease that is advertised at below $200, be certain to research and be aware of what you're engaging in, says DeLorenzo. Often, these low prices equate to massive down payment. It is important to know what amount you're required to pay in order to qualify for such low monthly payments. "A $5,000 upfront charge for a lease of four years increases by more than $100 the monthly amount advertised," DeLorenzo says. It is common to find a catch if a lease has lower monthly payments: an enormous down payment. 5. The monthly payment for buying vs. leasing Some dealers might try to entice you to lease by comparing monthly payments for each, and how much less the monthly payment would be if you went the leasing option. When you purchase an automobile, you are entitled to own it at the conclusion of your . With leasing, you need to return the vehicle. Don't fall for it by dealers who try to contrast apples with oranges, and then tell you that it's more economical it is to lease a car. 6. Ignoring the cost of the car just because you are leasing doesn't mean you don't need to worry about the cost of the vehicle. It still matters, because what you are paying to lease it largely depends on the price of the car as well as the rate of depreciation. What you should take away is that the price and worth of your vehicle are important when leasing. 7. The fees at the beginning and at the end of the lease. Prior to the lease is signed, make certain you are aware of charges. They could include: Acquisition fees: Also known as an administrative or bank fee, this is a one-time fee that lenders charge to set up the lease. The cost can range between $400 and $900. Sales taxes and license fees are not included in the monthly payment based on the state you live in and the specific contract, so be certain to read the fine print. Cost to buy-out when your lease is over, you will have the option to purchase the car in lieu of it being returned to your lender. End-of-lease charges If you choose to return the car, you'll be responsible for paying end-of-lease fees or the disposition fee. It could include inspection of the vehicle, cleaning and reconditioning, storage costs, transportation and administrative charges. Wear-and-tear charges: You may be charged for equipment that was lost or if the vehicle suffers wear and tear beyond what's covered in the agreement to lease. "Check out the specific language regarding what constitutes normal wear and tear' at lease termination, and also the responsibility you have for repairs or maintenance following lease termination," DeLorenzo says. What you should know is that the cost of leasing a car is far beyond the monthly payments. Review all of the charges before you sign on the dotted line, and that includes any that might come with breaking the lease's terms. 8. A longer term to get lower monthly payments Let's say that you speak to the lender to get your monthly payments down. They return, letting you that they have discovered that they could reduce your monthly payments by prolonging the lease. The truth is you aren't saving any money. While a lease with a longer term can mean you will pay less every month, you will also pay more interest during the lease. Takeaway: Don't be fooled by a smaller monthly payment which is due to a longer lease duration. If the lender suggests stretching the term to pay for more interest, you'll be paying more in the long term. 9. The money element While there's no APR in relation to a car lease but there are financing costs. These are known as the "money factor." The money factor works similar to an interest rate and is the determining factor for how much you'll pay in finance charges. Like you would expect, the higher the amount of money factor, the more you'll have to have to pay. Contrary to interest rates, the money factor is expressed as a decimal. To figure out the amount of your financial charges as a percentage, multiple your money factor with 2,400. If your money factor is .0025 6.5%, that's 6 percent. Takeaway: When shopping for a lease for an automobile, find out what the price factor is. Steps to follow Avoid falling into these car leasing traps by following these steps: Be aware of your requirements: When making a decision on whether a lease for a car is right for you, take into consideration the amount of miles you travel every year, the amount you can reasonably afford and whether leasing a car will fit in with your personal preferences, lifestyle and financial goals. Examine your credit score: Going at your credit report before you receive offers can help you have more leverage in negotiating the terms you desire. Compare rates: To find the best rates, speak to different lenders regarding their terms, in relation to your credit score. Negotiate what you can: While there are some items that you aren't able to discuss, such as the purchase fee and the residual value, you may potentially negotiate the disposition fee or the buyout price. Check the fine print carefully: There are hidden fees and lease limitations that may not be apparent while you're comparing options. Before you sign on to sign the contract, make certain to read the specifics. It is crucial to understand the mechanics of leasing a car and being aware of expenses, you can steer clear of typical lease traps, and also save money. While also being vigilant when it comes to leasing-related pitfalls to steer away from it is wise to take the time to prepare ahead of time to be able to walk into the leasing office with confidence and knowledge. Learn 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 since late 2021. They are committed to helping readers to take control of their finances by providing concise, well-studied and well-informed data that can break complex subjects into digestible pieces.






Auto loans editor




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