Leasing a car lets you rent a vehicle for a few years without the obligation to purchase it, so it’s a great way to get a new set of wheels while not having to fully commit financially. It’s a particularly good option for drivers who clock in less than 15,000 miles a year and won’t risk hitting any mileage overages. But leasing can be complicated, so to get the best deal, you should come to the table prepared with a few questions.
9 questions to ask before leasing a car
If you’re thinking of leasing a car, don’t jump at the first offer you see. Set yourself up for success by asking these questions first.
1. What is the amount due when I sign the lease?
Before you sign a lease, you should receive a detailed written statement of everything you have to pay or may have to pay. Upfront payment could include things like a security deposit, title fees, capitalized cost reduction, monthly payments paid at signing and registration fees.
Knowing the amount due when signing off on the lease is integral to not overspending. Plus, knowing the price breakdown of the extra fees can help you to better negotiate.
Key takeawayThe payment you sign off on is typically higher than the sticker price that attracted you, so ask for a list of fees first.
2. How long is the lease?
The leasing company will tell you how many payments you have to make, how much each payment will be and when the payments are due. It’s common to find 24-, 36-, 48- and 60-month leases, but you will also find odd terms, like 39 months. Some odd-month deals may be designed to confuse you.
When looking through your lease options, keep in mind that a longer lease will give you lower monthly payments, but you’ll pay more overall.Key takeawayWeigh your options before agreeing to a lease term and understand exactly how your term will affect your monthly payment.
3. What type of lease am I signing and what happens after it ends?
There are two kinds of leases: open-end and closed-end. In a closed-end lease, the leasing company sets a total price based on their estimate of the depreciated value of the vehicle. Even if your vehicle depreciates more than expected over the course of your lease, the only extra costs you’ll be responsible for are any excess mileage fees and wear-and-tear fees. This is the most common type of lease.
In an open-end or finance lease, you’ll have to pay the difference between the car’s residual value and its actual value at the end of the lease. If the car depreciates more than you expect, you may be left with a hefty charge at the end of your lease.
In both cases, read the small print so you’re not surprised by additional end-of-lease payments.Key takeawayKnowing what type of lease you’re signing helps you to better plan for your payments.
4. What is the residual value of the vehicle?
The residual value of a vehicle is the value that the vehicle is estimated to hold at the end of the lease. It is determined by the leasing company, though you can get an estimate on Kelley Blue Book. Knowing this number is helpful because it is a big factor in determining your monthly payment. The higher the residual value compared to the car’s original cost, the lower your monthly payment will be.
For instance, if your car is worth $20,000 and it’s expected that it will be worth $15,000 at the end of the lease, you’ll have a lower payment than if you choose a $20,000 car that is expected to be worth $10,000 at the end of the lease. In the second scenario, the lessor needs to recoup a larger percentage of the car’s lost value and will therefore charge you more.Key takeawayKnowing the residual value of a vehicle helps you determine which type of car and which type of financing is best for you.
5. Will there be a wear-and-tear assessment?
Leasing laws require that you be told whether wear and tear will be assessed when you return the vehicle – and, more specifically, what that assessment is based on. At the end of your lease, your car will be examined for exterior damage like scratches, dents and windshield cracks, plus interior damage like stains. You’ll be charged for any excessive damage, though you won’t have to pay for the inspection itself.
The law also says that wear-and-tear standards must be reasonable. The standards are based on both the number of miles that you drove and any damage done to the vehicle. If you have some superficial damage to your vehicle, it may be worth it to pay for touch-ups before your assessment.Key takeawayKnowing how wear and tear is assessed will help prepare you for any end-of-lease payments.
6. What is the money factor?
The “money factor” is the cost of the money you are putting into the vehicle – an equivalent to the interest rate you would pay on a new car. The “money factor” will usually be represented as a small decimal, but multiplying it by 2,400 will give you an indication of the annual percentage rate you are paying for the lease.
If you’re presented with a lease fee that’s represented as a decimal, ask whether it is the money factor or the APR; many people wrongly assume that the money factor is the interest they’ll pay, when in reality their interest rate is much higher.
Your money factor is largely determined by your credit score, so take time to improve your score before heading into the leasing office. You rarely can negotiate this number, because it is typically set by lending institutions.Key takeawayA money factor is not the same as an APR, though it does determine how much you’ll pay on top of your lease amount.
7. What is the lease mileage allowance and what happens when I exceed it?
A lease mileage allowance is the mileage you’re allowed to drive during your lease without facing additional charges. Drivers can typically expect leases that allow 12,000 or 15,000 miles before fees kick in. Excess mileage fees can range anywhere from 10 to 25 cents per mile, which can seem small but adds up quickly.
Understand in advance what your mileage allowance is and try to anticipate what your driving habits will be during your lease, as any long road trips might cost you. Although the miles allowance is often a negotiable number, changing it will impact your payment.Key takeawayExceeding your lease mileage allowance will cost you.
8. What happens if I can’t make a lease payment?
Although few anticipate circumstances that cause them to fall behind on lease payments, it’s important to understand what could happen if you do miss a payment. Typically a default occurs if you fail to make three or more payments in a row.
Many times, not paying your lease will lead to additional fees and negatively impact your credit score, but every lessor handles this situation differently. Many companies have grace periods, which you should ask about before signing the lease. It’s also wise to ask about a worst-case scenario where you default. After a certain amount of time, the lessor can repossess the vehicle and, in many cases, charge you an early termination fee. Before signing, find out what that price would be.Key takeawayAll lessors handle default differently, so ask ahead of time to know what penalties could occur.
9. Can the lease be extended?
You can usually request to extend your lease by a few months at the same price, though most lessors have a limit. Even if you’re not sure whether you’ll need to extend your lease, understand whether extending it will change the terms of the original lease or bring potential new costs into play when you finally turn it in. Knowing these costs upfront can help you better plan when the end of your lease approaches.
Along with possible lease extensions, ask about termination fees. Companies must disclose under what circumstances the leasing company can demand their vehicle back or can change the terms of the deal.Key takeawayAsking about lease extensions ahead of time will ensure that you aren’t blindsided with additional costs if you need more time at the end of your lease.
Final considerations to keep in mind before leasing
Leasing a vehicle is a great option for drivers who are interested in testing out the newest options while avoiding a high price tag. Drivers who don’t drive much may find leasing to be a much more cost-effective option than purchasing a new car.
On the other hand, leasing does carry restrictions that purchasing doesn’t. Most notably, you’ll face limits on the miles traveled, and it’s even more important to keep the car in good condition. Plus, if you jump from lease to lease, you won’t be building any equity in a vehicle that you own.
Before heading to a dealer to ask leasing questions, reflect on your driving habits to see if leasing is right for you. Using a leasing versus buying calculator is a great starting point to see potential savings.
Leasing a vehicle is a big commitment that will stay with you for miles, but it can pay off if you know what you’re getting into. Preparation is key, and asking the right questions will help you get the best deal and enter the leasing office with confidence.