What Should You Know Before Signing a Car Lease?

Leasing a car is quite the new trend! Leasing is renting the car for a fixed period. Anyone who wants to change cars every few years is quite attracted to car leasing options. A car lease allows you to easily switch to the latest models in newer cars without worrying about loan instalments and down payments.

However, like with any lease agreement, there are several things to consider on a car lease – monthly payments, legal fees, mileage limits, and so on. To avoid making unnecessary and costly mistakes, you should know a few leasing terms before signing on the dotted line. Since it’s quite easy to be led astray and get lost in the jargon, this guide will help you break things down.

What Are the Key Terms in a Car Lease?

Understand all the terms and costs of a car lease before you exchange money. Understanding this always helps keep things in perspective.

• Wear and Tear: Wear and tear is a charge that’s usually applied to the excessive. However, you should ensure you have a record of the wear and tear of the leased car to compare it with the new wear and tear.
• Mileage Allowance: Mileage allowance changes from one leasing company to another. You could have a mileage limit of 10000 to 15000 miles as an average. If you cross the limit, you might have to pay extremely costly per-mile charges or fees. You should check for special offers before you lease a car model.
• Disposition Fee: This fee is usually to be paid at the end of the lease only if you don’t purchase the car.
• Monthly Payments: As the name suggests, a monthly payment is what you will have to shell out each month. This monthly payment usually includes the fees and taxes.
• Residual/ Estimated Value: a residual value is what the car is deemed to be once the lease is over. Always remember, the higher you get a residual value, the lower your monthly payments will be.

What Are Leasing Hidden Costs?

It’s necessary to understand the hidden costs before finalising a car lease. You can easily fall prey to fees and other charges. Let’s look at a few in detail.

• Upfront Fees: You should always get a complete breakdown of the upfront fees. The upfront fees usually include registration, acquisition fees, and taxes. Ensure you’re not being overcharged by asking for a breakdown.
• Wear and Tear Fees: Wear and tear could mean something different for different people. Always check with your car dealer what is considered normal and abnormal wear and tear to avoid paying extra unnecessarily.
• Turn-In or Disposition Fees: These are usually fees that are applied when you return the car. It’s best to ask about the turn-in fees before you lease the car. Not knowing these fees can turn out to be quite expensive on the pocket.
• Early Termination Charges: As the name suggests, these are fees or charges you pay when you want to return the leased car early. You will likely own several months of car payments, for which the fee is applied.

How Do You Negotiate for a Car Lease?

Don’t just accept everything! Negotiate to get the best lease for your dream car. Negotiate the selling price of the car (if purchasing later), just like you would a new car in a showroom. When leasing, it’s best to aim for a car that has a larger or higher residual value.

When leasing a car, remember that you need a high credit score. Just like applying for a loan, a higher credit score will get you lower interest rates on the monthly payments. Check your credit score and keep your credit report handy during negotiations.

Another factor to consider is the deals and discounts. Many manufacturers offer special discounts, promotions, and deals for car leases. Check beforehand if you can avail yourself of these offers for the car you like.

What Are your Options at the End of the Car Lease?

You’re not left without options at the end of your lease. Let’s look at a few scenarios so you get a better picture.

• Leasing a new car: If you want to lease a new car (after all your payments for the current one), the dealer may offer you a lower interest rate on the next one. You could also get some incentives and discounts.
• Returning the car: If you’re done with this car, you can simply return it (after the completion of all the monthly payments) to the dealer. However, you should remember there may be wear and tear fees and mileage charges added.
• Purchasing the car: You can easily buy the car from the dealer. Check the residual value that’s stated in your leasing contract.