Email this Page Print Friendly Version

If you've decided that leasing is the way you want to go, here are some tips on what to expect and what to watch out for.

By the way, some of the terms used in leases may sound just like the ones you're used to from buying cars, but they could have different meanings. Some of the terms will probably be new.

Shop Around For Your Leasing Company
You have as much right to choose a leasing company as you do to choose the car you want and the dealership you want to buy it from. Do not feel required to go with whatever leasing program the car dealership has. There are numerous leasing companies. Shop around for a lease the same way you do for a car.

You might want to start looking at leasing companies before you start looking for a car. After you talk to the leasing company you'll have a much better idea of what you can afford.

In fact, some leasing companies will buy the car for you based on your specifications. You don't even have to go to a dealership unless you want to.

Acquisition Fee
Leasing companies charge acquisition fees in the same way that mortgage lenders charge points. But they don't always spend much time talking about it until you're so committed to the deal that you'll go along with it because you're too eager to start driving you new car. It's usually included in your monthly payment. Ask about it. Make sure they show you what it does to your monthly payments and tell you what it comes to every month.

Capitalized Cost
The Capitalized -- or Cap -- Cost is the price the lease will be based on. This is the price of the car, plus any acquisition fee or other added charges. These can also include capitalized cost reductions, such as dealer rebates or incentives, which can lower your monthly payments. Make sure you understand and agree to every number there. Negotiate with the leasing company the same way you do with a car dealer. Lease agreements are not carved in stone until after they are signed. Until they are signed you have room to move.

Disposition Fee
This is normally a charge that is added at the end of the lease to cover the cost of selling or getting rid of the car. After all, at that point it's a used car. Make sure you understand exactly how much it will be. Some companies will even charge a disposition fee when you decide to buy the car yourself at the end of the lease. See if you can get them to agree to waive the fee if you decide to buy the car yourself. Some companies will do that.

Open- and Closed-End Leases
Make sure you get a closed-end lease. At the end of a closed-end lease you hand over the keys and walk away. With an open-end lease you could wind up responsible for any difference between what they estimated your car would be worth at the end of the lease period and what it is really worth. It could cost you a great deal of money. So make sure your contract specifies that it is a closed-end lease.

Payment Structure
When you take out a loan, the payments are normally due at the end of the month. So when you buy a car you'll make your first payment after you've had the car for a month. When you lease a car you pay in advance. Your first lease payment will be due the day you sign the contract.

Penalties
Even though you are making monthly payments, it's not your car. It's theirs. So if you've driven more miles than you were allowed to under the lease, you'll have to pay for them. The same applies to any damage to the car that is beyond "normal wear and tear." If you try to get out of the lease before the end of the lease agreement, you can definitely expect to pay penalties.

Registration, Tags, Title Fees, etc.
These will be the same whether you buy or lease a car.

Residual Value
This is what the car will be worth at the end of the lease. This figure is determined before you sign the contract, so at the end of two years it may be off by a little or by great deal. Regardless what the actual value of the car is after two years, you can buy it for the price agreed to in your lease agreement.

Security Deposit
You won't have to make a down payment when you lease a car, but you might have to make a security deposit. It's usually equal to or a little bit bigger than your monthly payment. You'll get it back at the end of the lease, minus any charges for damage, excess miles, disposition [see below], penalties, etc.

Taxes
If you do make a down payment on the car, you will probably have to pay sales tax on it in most states. You can also expect to pay sales tax every month on the portion of the car you are "buying," which is that portion that is not interest on the loan.

Finally -- Read The Fine Print
All lease agreements are not the same. They can vary from state to state, even from dealer to dealer.

You will be living with your lease agreement for as long as you lease the car.

Study it.

Make sure you understand every number in it. Make sure you understand what shape the car is supposed to be in when you return it, exactly how many miles you're allowed to drive, and what disposition fees you'll be liable for.

Remember. A lease agreement is like any other contract. Negotiate.