How to Lease a Car

Guide Note

A car is a big investment, so you owe it to yourself to figure out the best way to pay for one. If you are wondering if you should lease your next car instead of buying, or are unfamiliar with what leasing means, learn the benefits and drawbacks on this page all about how to lease a car.

Table of Contents

Car Leasing Tips

  1. Decide if leasing would be better than buying for your situation.
  2. Do the research to determine if leasing the car you want would cost less than buying.
  3. Find the best car for your needs, considering gas mileage, function, size, etc.
  4. Be aware of fees and charges that will accompany leasing.
  5. Watch out for scams!
  6. Keep up with maintenance schedule of your car.

Introduction: How to Lease a Car

Picture yourself in a shiny new car. (Creative Commons photo by Matt McGee)
Picture yourself in a shiny new car. (Creative Commons photo by Matt McGee)
  • Buying a new car is never a decision that should be taken lightly, so it's important to know what all of your payment options are. Although leasing is not nearly as popular as buying, it is worth looking into if it makes sense for your particular situation. The most important step when leasing a car happens before you sign anything; you must determine whether it really makes sense for you to lease rather than buy.

What is Leasing?

  • Leasing a car is sort of like renting an apartment. You sign a lease for a limited amount of time (usually 2-5 years) and pay a monthly fee to use the car. At the end of the lease, you return the vehicle to the dealer.
  • Buying a car is more like buying a house. Most people take out a bank loan to buy the car and pay it off in monthly installments. When the payments have all been made, the car is yours to keep.

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Step 1: Determine if Leasing is Right for You

Things to Remember About Leasing

Signing a lease is a big step, so be prepared. (Creative Commons photo by Marc van der Chijs)
Signing a lease is a big step, so be prepared. (Creative Commons photo by Marc van der Chijs)
  1. It does not necessarily cost less. Although monthly payments for leased cars are often lower than those for purchased cars, this is not always the case. To determine what would be most economical for you, use this handy Online Auto Calculator (courtesy of The Motley Fool).
  2. You will not own a leased vehicle. The money you spend each month does not go towards buying the car, so it will not belong to you when the term is up.
  3. There are mileage restrictions. If you are a heavy driver and regularly add up more than 12,000 - 15,000 miles per year, leasing is probably not for you. Just like exceeding your cell phone minutes, you will be charged by the mile if you go beyond the number specified in the lease (usually around 10-15 cents per mile).
  4. You pay for the condition of your car at the end of the lease. End-of-lease terms require you to pay for anything the dealer deems to be "signs of excessive wear and tear."
  5. Lease termination will cost you. Whether you choose to end the lease early or your car is stolen or totaled, you will be looking at termination fees.
  6. The end is only the beginning. There is no relief from monthly payments if you lease. Once your lease expires, your payment cycle will only begin all over again with a new car.
  7. Insurance may be higher when you lease. Insurance varies depending on where you live and a number of other factors. Consult a local insurance agent for a premium estimate.

Perks of Leasing

  1. You pay less for maintenance. Just like having a landlord for your apartment, if something goes wrong with your car, you are usually not responsible for paying for repairs. But note that car accidents will be your responsibility.
  2. There is little to no down payment. Unlike buying a vehicle, you will not be asked for nearly as much money for a down payment, sometimes nothing at all. Keep in mind that there will be other fees up front, however.
  3. Interest rates won't phase you. While your car-buying friends fret over high interest rates on their bank loans, you'll be sitting pretty. Keep in mind, however, that low interest rates will mean your payments aren't much better than those for buying a car.
  4. You get a new car every few years. Depending on the length of the lease, you will be getting a brand new car every few years. This will allow you to keep up with technology and safety features or just stay in style!
  5. You can write lease payments off if you are using your car for business purposes.
  6. It's like a long test drive. When the lease is up, you often get an opportunity to purchase the vehicle. Although these offers are not typically the easiest option for your wallet, it's as though you've gotten to test drive the car for a few years.
  7. Cars depreciate in value. Although you could think of leasing as throwing your money away, consider the fact that a new car instantly goes down in value the moment you buy it. When leasing, you are only paying for the depreciation of the value of the car during the lease period.

NOTE: Even if you're not buying a car, you still must purchase your own insurance.

Characteristics of a Good Lessee

  • Now that we've run down the pros and cons of leasing instead of buying, you might consider yourself an ideal candidate for leasing if:
  1. You do not drive a lot of miles, and you use your car for business purposes.
  2. You cannot afford a large down payment on a new car.
  3. You would like to or need to have a new car every few years.
  4. You'd prefer not to deal with maintenance whenever possible.
  5. You don't like the idea of having to sell or trade your car when you want a new one.

Step 2: Choose the Right Car

With so many cars to choose from, one is bound to be perfect for your needs (Creative Commons photo by Random J)
With so many cars to choose from, one is bound to be perfect for your needs (Creative Commons photo by Random J)
  1. Gas Mileage. With gas prices and global warming being continuing issues, consider your car's impact on your wallet and the environment. Fuel economy can vary greatly among vehicles. Hybrids are more expensive, but more efficient. Trucks and SUVs get worse gas mileage than cars. High-powered engines burn more fuel.
  2. Function. What will you be using your vehicle for? Trucks can haul heavy loads and drive off-road. SUVs and vans can seat your whole family. Luxury cars provide comfort and safety. Sports cars offer speed, agility and fun. Determine how you will be using your car the most to figure out what best suits you.
  • If you have no idea what you're looking for, talk to your friends about what cars they drive and why. Pick up an issue of Car and Driver or Motor Trend to familiarize yourself with the latest models, and use services such as Consumer Reports to find the most reliable and best fit for your next ride.
  • After you've narrowed down your choices, it's a great idea to go to a dealer and test drive all of the cars you're considering leasing. This simple step can make or break your decision and help you find exactly what you're looking for in a car.

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Step 3: Take It To The Dealer

  • When you lease a car, a separate leasing company actually buys the vehicle from the dealer and then charges you the monthly payments for it. However, you will be working entirely with the dealer throughout the leasing process. They handle all of the paperwork for the the leasing company. You'll want to familiarize yourself with common leasing words and terms.

What to Expect From the Dealer

The dealership is where all the magic happens! (Creative Commons photo by S Fujiwara)
The dealership is where all the magic happens! (Creative Commons photo by S Fujiwara)
  1. Fees and charges. Although you will likely be paying little to nothing for a down payment, there are other fees you'll have to take care of up front. These include your first month's payment, security deposit, disposition fee, taxes, etc. Know what to expect when you sign the lease.
  2. Warranty options. Talk to anyone who has leased a car, and they will stress that the warranty is paramount. You will want to get the best possible warranty to avoid any unpleasant surprises down the road, but watch out for extended warranty scams. Warranties address important issues such as maintenance fees.
  3. The ability to negotiate. Most people know you can haggle down the price of a new car, but many don't realize that there is often room to bend when dealing with lease terms (including the price or the number of free miles you are allotted). The key is just to be sure that you feel you are getting a fair deal, and don't feel guilty about saying "no" if you think you are not.
  4. More unexpected fees. Let's face it: going to a car dealership can be a stressful and expensive undertaking. Even if you've talked to the dealer ahead of time, be mentally prepared for any sudden extra fees that may pop up at the last second. Just remember that it's completely within your rights to leave at any time if you feel you're being treated unfairly.
  5. A possible scam. Unfortunately, there are some dishonest dealers out there who would like to swindle you out of your hard-earned cash. Automotive.com explains some common examples including the secret price hike, the disappearing trade-in, and the phone lease vs. loan comparison. If you learn what each of these scams involves, you should be able to successfully identify and avoid them.

NOTE: Any time you are dealing with salespeople, don't forget to remain polite and courteous, even if you think you might be getting scammed. Rude customers rarely have much negotiating power!

Step 4: Take Care of Your Investment

  • Although it's not an investment that will make you money down the line, it could certainly end up costing you more if you don't take care of your car.
  1. Keep track of your mileage. If you're not sure whether or not you will go over your free mileage, keep an eye on the odometer and budget your miles if you have to.
  2. Clean and maintain the vehicle properly. Don't give the dealer any excuse to charge you extra for wear and tear when you make your return.
  3. Drive carefully and practice good common sense. If you act as if you don't own the car you're driving, you may be more likely to be careless with it. Dents, scratches and scrapes can be used against you upon return of the vehicle.
  4. Above all, enjoy yourself. You have a brand new car to get familiar with for the next few years... Have fun!

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Resources for How to Lease a Car

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