9 Car Leasing Traps You Should Avoid Bankrate Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Leasing a Vehicle Advertiser Disclosure
Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: On This Page
prostooleh/Getty Images May 05, 2022 Jackie Lam is a contributing writer for Bankrate. Jackie writes about auto loans. Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Editorial Independence
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Leasing a car may seem like a good idea at first blush, but often leases come with so many caveats and pitfalls that the drawbacks outweigh any benefits associated with the deal. Even if you are considering leasing a car instead of owning you should still be vigilant about what you are getting into. Unlike owning a car, which you could sell if you’d like, leasing leaves you with a legally binding agreement — and you’d need to hold onto the car until your term ends. Here are nine traps you risk falling into when leasing a car. 1 Potentially expensive mileage restrictions
Most car leases come with a cap on the number of miles you can put on the car each year. For reference, U.S. drivers average about 13,500 miles per year, according to the Federal Highway Administration. Some car leases, especially those touting low monthly payments, include annual mileage caps of 10,000 miles or less, says Matt DeLorenzo, a senior managing editor at Kelley Blue Book. Depending on the type of vehicle you are driving, expect to pay a mileage penalty of anywhere from 10 cents to 25 cents per mile if you go over your annual cap. The higher the price tag of the car, the higher the penalty. If your penalty is 25 cents per mile and you exceed the cap by 3,000 miles in a year, you’re looking at a hefty $750 in added costs. Takeaway: If you are considering going the leased car route, estimate how many miles you average per year to ensure you know how much the lease will cost you if you go over the mileage cap. 2 Early termination costs
Should you want to end your lease early, you might have to pay a pretty penny to get out of the agreement. It depends on the terms of your lease, but you might have to pay the difference between how much the car has depreciated and what you have already paid for it. In some cases, this charge might be several thousand dollars. Say you’re leasing a $40,000 car. After three years, you’ve paid $18,000. However, the car has depreciated by $21,000. Should that be the case, you might need to pay the difference between what you’ve already paid, $18,000, and the amount the car has depreciated, $21,000. This means you’d be on the hook for $3,000. Early termination costs can also include taxes and a, which helps offset the cost for the lender to sell the vehicle. You will also be responsible for paying off any late charges, parking tickets and any outstanding monthly payments. Takeaway: Read the fine print on early termination clauses, DeLorenzo recommends. “Find out exactly how much you’ll need to pay if your lease doesn’t go to term,” he says. 3 Low residual value
The residual value is how much the car is worth at the end of your lease term. Let’s say the lender estimates that the $30,000 car you’re leasing today will be worth $15,000 in three years’ time. Your monthly payments will be calculated to cover that $15,000 loss in value, so a 36-month lease equates to monthly payments of $416.67, not including interest or any taxes and fees. Takeaway: Residual value is the agreed-upon value of the car when the lease ends. The residual value includes depreciation. 4 An advertised price that requires a huge down payment
When you see a advertised as being below $200, be sure to do your homework and know what you are getting into, DeLorenzo says. Often, these low prices equate to massive down payments. You will want to check how much you are being asked to put down in order to qualify for such low monthly payments. “A $5,000 upfront charge on a four-year lease effectively adds more than $100 to the advertised monthly payment,” DeLorenzo says. Takeaway: There is usually a catch if a lease comes with low monthly payments: a hefty down payment. 5 The monthly payments for buying vs leasing
Some dealers might try to entice you to lease by comparing the monthly payments for, and how much lower your payments would be if you went the leasing route. Remember: when you buy a car, you get to own it at the end of your. With leasing, you need to return the car. Takeaway: Don’t be fooled when a dealer tries to compare apples to oranges and tell you how much more financially savvy 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 price tag of the car. It still matters, because what you are paying to lease it largely depends on the cost of the vehicle and its depreciation rate. Takeaway: The price tag and value of your car do matter when leasing. 7 Fees at the beginning and end of the lease
Before you sign a lease, be sure you’re aware of all the fees. These might include: Acquisition fee: Also called an administrative or bank fee, this is a one-time fee that lenders charge to put the lease together. The amount can run anywhere from about $400 to $900. Sales taxes and license fees: This might not be included in your monthly payment based on the state you live in and the individual contract, so be sure to read the fine print. Price to buy out: When your lease ends, you will have the option to purchase the car instead of returning it to the lender. End-of-lease fees: If you decide to return the car, you’ll be responsible for paying end-of-lease fees, also known as a disposition fee. This might include vehicle inspection, cleaning and reconditioning, storage, transportation costs and administrative fees. Wear-and-tear fees: You might be charged for lost equipment, or if the car suffers wear and tear beyond what’s covered in the lease agreement. “Check out the specific language on what constitutes ‘normal wear and tear’ at lease end, and what your responsibility is for any repairs or maintenance at lease termination,” DeLorenzo says. Takeaway: The cost of leasing a car goes beyond the monthly payment. Review all of the costs involved before signing on the dotted line, including any that might come with breaking the terms of the lease. 8 A longer term to get a lower monthly payment
Let’s say you talk to the lender to get your monthly payment down. They return, letting you know that lo and behold, they were able to get your payments down by extending the lease. The truth is you aren’t saving any money. While a longer lease term can mean you will pay less each month, you will also pay more interest during the lease. Takeaway: Don’t be fooled by a lower monthly payment that comes with a longer lease term. If the lender suggests stretching the term, you’ll pay more interest over the long run. 9 The money factor
While there’s no APR when it comes to a car lease, there are financing charges. These are known as the “money factor.” The money factor is a lot like an interest rate, and it determines how much you will pay in finance charges. As you might expect, the higher the money factor, the more you will pay. Unlike interest rates, the money factor is expressed as a decimal. To figure out what your finance charges are as a percentage, multiple the money factor by 2,400. So, if your money factor is .0025, that’s 6 percent. Takeaway: When shopping for a lease on a car, ask what the money factor is. Next steps
Protect yourself from stumbling into one of these car leasing traps with these simple steps: Know your needs: When deciding whether a car lease is right for you, consider how many miles you drive each year, how much you can reasonably afford and how leasing a car would fit with your preferences, lifestyle and financial goals. Check your credit: Looking over your credit file before you receive offers can help you have more leverage to negotiate the terms you want. Shop around: To get the best rates, talk to different lenders about their terms based on your credit. Negotiate what you can: While there are some things you can’t negotiate, such as the acquisition fee and residual value, you can potentially negotiate the disposition fee or the buyout price. Read the fine print: There are hidden fees and limits to your lease that might not be revealed when you’re shopping around. Before you sign on the dotted line, be sure to pore over the details. The bottom line
By understanding how leasing a car works and being aware of the costs, you can avoid common leasing traps and save money. Along with remaining vigilant when it comes to leasing pitfalls to steer clear of it is always wise to take the time to ahead of time so you can enter the leasing office with knowledge and confidence. Learn more
SHARE: Jackie Lam is a contributing writer for Bankrate. Jackie writes about auto loans. Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites.