How A Vehicle Lease Works
A vehicle lease is essentially a contract between you and the car dealership from which you’re leasing. When you sign a vehicle lease, you’re agreeing to certain conditions set by the dealership. Those conditions can cover things such as:
- The term of the lease
- Number of miles you’re allowed to drive per year
- Total number of miles you’re allowed to accrue during the term of the lease
- Penalties for exceeding the mileage limits
- Maintenance requirements and responsibilities
- Monthly lease payments and how they’re calculated
- What happens if you miss a lease payment
- Rules regarding early termination of the lease
Your lease may also specify what your options are when the lease term ends. This may include extending the lease on the same vehicle, exercising a purchase option to buy the vehicle at an agreed-upon price, or signing a new lease on a different vehicle.
What Do You Need To Know Before Leasing
Arguably the key concern when considering car leasing is, on average, how many miles you drive yearly. According to the United States Department of Transportation, most Americans drive a total of 13,476 miles per year.
Signing a lease binds you contractually not to exceed an established mileage limit. That limit, or mileage cap, is averaged out over the number of years in the agreement.
Depending on the lease, agreements range from 10,000 miles per year to as many as 15,000 miles per year. Whatever the limit might be, the leasing company will penalize you for every mile above the limit. Generally, that penalty can be between $0.12 to $0.30 per excess mile. At $0.30, that works out to $300 for every 1,000 miles over the limit. It can add up.
Why Do People Lease Cars
Here are some popular reasons:
- It’s less expensive: With the rising retail price of many of today’s cars, leasing is often the least expensive way to get a new vehicle. Leases tend to require lower down payments and lower monthly payments than car purchases. A lease is also a great way to get a nicer new car for less money than you’d have to pay to buy it.
- There’s a lower cost of maintenance: Leases typically end before cars require major service or new tires, so maintenance costs are usually low. Leased vehicles are almost always under the original factory warranty, so owners don’t have to worry about the costs of repairs as long as they are problems covered by the warranty.
- You can have a new car every few years: Some people always want to be in the latest and greatest new car. Leases, typically for three years, offer a faster turnaround time than the standard purchase cycle, which is about six years. Leases are also easier to exit, once the lease term is complete. Assuming there are no over-mileage or excessive-damage charges, you can drop off the leased car and move on to whatever is next which probably is another lease. This is a lot easier than buying a car with a long loan period, and tiring of the car before the loan is paid off especially if you owe more on the car than what it is worth. That’s called being “upside down,” and it’s no fun.
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What If I Want Out Of My Lease Early
It bears repeating: A car lease is a binding contract. The leasing company sets the monthly payments based on the length of the lease established in the agreement. If for some reason any reason you want or need to bail on the lease early, there will be a penalty for doing so.
At worst, that penalty may require a balloon payment to cover the remaining outstanding payments. You cant just return the leased car or sell it to pay off the leasing company. Its not your car, and you have no equity in it.
Brokers with auto lease transfer companies like swapalease.com can also attempt to connect you with a deal that lets you sign over the lease to someone else.
Before you make any choices, weigh all your options to determine the best option for you.
Are All Mechanical Faults & Services Included In The Contract
All cars come with a standard manufacturer’s warranty typically between 3 and 5 years. If you have any issues in the warranty period you’ll usually be covered.
With Personal Contract Hire, you have the option to include a maintenance package for an additional low monthly fee. This will cover you for tyres, routine maintenance, servicing and any MOTs that fall within the contract duration.
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How To Lease A Used Car
You can lease a certified pre-owned car through many franchise dealerships. What was once hard to find is now more common, but used-car leasing does limit you to certain vehicles. You can only lease a Honda from a Honda dealer, a Ford from a Ford dealer you get the picture and only vehicles that meet the manufacturers standards for a CPO-worthy car. CPOs are used cars under a certain age and mileage limits that the dealer has inspected and reconditioned.
The other way to find a used-car lease is to take over a lease from a current leaseholder. Their leasing company would have to approve you for the lease transfer and likely charge a transfer fee. You can find leaseholders through a matchmaking service like Swapalease or LeaseTrader where outgoing leasees list their vehicles. Some offer cash incentives that make up the cost of the transfer fee and more. Unlike a traditional lease, youll avoid any down payments and upfront acquisition fees, and simply make monthly payments.
Used-car leasing vs. new car leasing
When you go through a dealer, used-car leasing works the same way as a new car lease:
At lease end, no matter how you obtained your used-car lease, you may have to pay a disposition or turn-in fee plus any penalties for exceeding the leases mileage limits and wear-and-tear policy.
Buying Vs Leasing A Car
When you lease a vehicle, you’re basically renting it from the dealer for a certain length of time. That’s usually 36 or 48 months. Once your lease period ends, you have the option of returning the vehicle to the dealer or purchasing it at a pre-determined amount, which is defined in the lease contract.
That’s a lot different from buying a car. Buying it outright means you own it after the loan is paid off.
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Penalties And Extra Costs
Leasing can be risky for a term of five years. Driving conditions may very well change because of employment or family needs. Going over mileage can be expensive–up to 20 cents per mile past the contract amount. A leasing term of 36 to 39 months is the most common, because warranties are in place from the factory. Leasing a vehicle for 60 months may not include a warranty that lasts that long. You are responsible for all repairs to the vehicle while you are driving it. Additionally, any damage to the vehicle must be fixed before return. You will be charged for damages not repaired, extra wear and tear determined by the leasing institution or for failure to carry out the term of the contract. Generally you may not end your lease early without penalties.
What Else Can Autoflex Do
If you live in Richardson, TX, come in and see us. We’re always worth the trip. Now, you don’t have to take advantage of our auto lease programs to experience significant savings. What if you could purchase with the flexibility of a lease? You can! And we’re the only ones doing it. Our FlexBuy program delivers nearly 50% savings on monthly finance payments. No mileage restrictions. No usage restrictions. As if this wasn’t good enough, you can trade her in with a guaranteed trade value told to you at contracting.
If you’re still thinking about auto leasing, our specialists will be happy to take you through our programs line by line. But don’t forget about the “Flex” in Autoflex. That’s because we’re flexible. Let’s say you wanted an economical Nissan lease because you do a ton of driving for work. No problem. We can customize a high-mileage, long-term lease to suit your lifestyle.
Lastly, you can find some of the finest used cars in Dallas in our inventory. If you need something for the first-time-driver in your family, a work vehicle, or any reason at all, you’ll love the additional savings that you’ll find with any of these cars, trucks, pickups, vans, or SUVs. We’re also your Dallas lease returns center! Don’t go anywhere else. Ground your lease here, and discover even more benefits when you do.
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How Do You Lease A Car
Head to a dealership, ask to test drive a car, say you want to lease said test-driven car, pay the person in front of you, leave the dealership with said test-driven and paid-for car. Youre done congratulations!
In reality, it isnt much more complicated than that. Youre going to go through most of the same steps as if you were purchasing a car. There are a few key differences, though. You wont have to do a lot of the financing documents as if you were purchasing a car. You will have to fill out lease agreements, agree on the term of the lease, agree on the mileage the lease allows, and determine if leasing or buying is right for you.
As mentioned above, youll also likely need to put down a security deposit.
The author’s previously leased Golf R.
You’ll Never Own The Car And When The Lease Ends Your Only Option Is To Hand It Back
Once your agreed contract term has run out, you’d usually arrange for the car to be collected and returned. However, you may be able to extend the lease it’s worth contacting the finance company a few months before the end of the deal to check it will allow this, and whether it’ll offer a discount on the monthly payment as it’s now an older car.
When you’re returning the car, the finance company will arrange a time for it to be collected and inspected. Providing it’s in good condition with no damage and within the agreed mileage, then there’ll be nothing else to pay.
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How To Lease Your Car
For the most part, the process of shopping for a leased car is about the same as shopping for a vehicle you plan to buy. Research is the key. Other steps to take include:
Cons Of Leasing A Vehicle
There are also some things that can make leasing a less attractive option than buying a car. Here are a few of them:
- You will be limited in the number of miles you can drive, such as 10,000 or 15,000 per year.
- Penalties for exceeding the mileage limits can be steep.
- You may also be penalized for excessive wear and tear.
- Getting out of a lease early if you need to can prove expensive.
Another downside for some people is that they’re not permitted to customize the vehicle, which is something you can do only if you’re purchasing one instead.
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Though You Won’t Own The Car You’re Usually Responsible For Insurance Parking/speeding Tickets And General Upkeep
The leasing company remains the legal owner and registered keeper at all times. But you’ll still be responsible for any parking or speeding tickets as the leasing provider will just pass these on, sometimes with an admin fee on top.
You’ll also be responsible for servicing costs and insuring the car, so factor these in on top of your monthly payment.
It’s likely you’ll be offered the option of adding a maintenance package to the deal, which you’ll pay for monthly. Policies vary, but will usually cover annual servicing and replacement tyres.
Before signing up, get an idea of servicing costs separately, so you can make a fair comparison, especially as new cars typically don’t need servicing in the first year. Also bear in mind that most faults will be covered under the manufacturer’s warranty anyway.
You’ll usually need comprehensive car insurance
It’s usually a requirement of the lease to have comprehensive cover in place, and you’ll usually need to provide a copy of your insurance certificate before taking delivery.
As soon as you receive the registration details and have a confirmed delivery date, it’s a good idea to get a quote as soon as possible as policies tend to be more expensive if you take them out a day before the insurance is required . See our Car insurance guide for full help and information.
What Is An Open
An open-end lease is a bigger gamble for the lessee, who is accepting more of the risk. Typically that lessee is a commercial enterprise or business. The leasing company still sets a residual value and the monthly payments. Luckily, open-ended leases usually have more flexible mileage options than their closed-ended lease counterparts. However, unlike a closed-end lease, its the lessee taking the hit if the residual value at the end of the lease is less than the vehicles actual market value. The lessee must pay the difference.
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Take Care Of Your Car
Once youve signed your lease and driven off the lot, you should take good care of your car. Remember, you could be responsible for any and all damages during your lease term.
Getting extra covering and protection for the floors and seats of your newly leased car may not be a bad idea. Youll want to keep your leased vehicle looking its best to avoid additional fees.
Youll also have to keep up with routine maintenance. If you dont, it could cost you at the end of your lease. While that oil change might be inconvenient, youll want to take care of the vehicle.
The good news? Some car leasing agreements include maintenance, so you wont have to pay extra for it.
If at all possible, keep your vehicle for the whole term of your lease. If you terminate your car lease early, you may have to pay an early termination charge, which is typically the difference between the lease payoff amount and the value of the vehicle. That charge can be several thousand dollars.
When Does It Make Sense To Buy Instead Of Lease
Having a brand new car every few years may sound great, but leasing isnt for everyone. There are some instances where you may consider leasing, but find that financing is the best route to take. Two common dilemmas include:
- When your credit is less than perfect Although there are companies that offer bad credit leasing, the majority of leases are reserved for consumers with good credit. It can be difficult to qualify for a lease with bad credit, and you may not get the vehicle you want if you do end up getting approved. If you want to improve your credit score and the car you want to lease isn’t available to you, you should consider financing a vehicle with a bad credit auto loan. You can get a reasonable car for the time being, and give yourself a chance to improve your credit score so you can lease the vehicle you want down the road.
- If you can only work with a long-term lease If youre on a tight budget and find that the only way you can lease a car is by extending the term, you may want to reconsider. Leases are generally cheaper than financing, but if the only way you can lease is with a long term, youre better off financing since it allows you to build equity. You can finance a vehicle for the term you need, while any down payment you make brings the overall cost of the loan down. Plus, if you add a co-borrower and combine incomes, you may be able to qualify for a better interest rate.
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You’ll Pay Hefty Fees At The End If You Damage The Car Or Exceed The Annual Mileage Allowance
When the car is collected and inspected, any damage will usually be pointed out to you and recorded in a report. If there’s damage beyond fair wear and tear , you should receive a bill to cover the repair charges.
Once the car has been returned you no longer have any option to get other quotes, so it’s worth getting any major damage repaired before the inspection, allowing you to do the repairs more cheaply.
Similarly, if you’ve gone over the agreed mileage limit, you’ll need to pay a charge usually about 10p per mile .
Avoid these charges by agreeing a sensible mileage upfront and taking good care of the car. Always request a copy of the dealer or finance company’s fair wear and tear policy at the start of the agreement, so you know what fees to expect.