In recent years, an increasing number of consumers have been leasing instead of buying their cars.
Attractive offers that promise to get drivers behind the wheel of a new car without the higher monthly payments associated with new cars appeal to customers who want to keep up with changes in technology and design.
Of course, just as with buying a new car, there’s some homework to do before signing a lease agreement. Here are five things you should consider when you’re thinking about leasing a car:
- The upfront costs: Although dealers advertise low monthly lease payments, you’ll typically have to pay several thousand dollars at the beginning of the lease to get those low monthly payments. Some financial experts, including Philip Reed, a consumer advice columnist at Edmunds.com, advise never paying more than $2,000 in advance.
- Mileage limits: Another way leasing companies keep those monthly payments low is by putting limits on how much you can drive each year. In many cases, contracts will limit your annual mileage to no more than 15,000 miles (less in some cases). Should you exceed that limit, you’ll be charged as much as 30 cents per mile at the end of the lease – and that can add up quickly. Evaluate your driving habits, then find out what the mileage limit is. If you think you’ll exceed it, ask for a higher limit.
- Lease plan coverage: As soon as you drive a car off the lot – regardless of whether you buy it or lease it – its value drops. In the case of a leased car, that might mean if it’s stolen or totaled the total sum paid out by your insurance company might not cover your balance on the lease. Consider a car with a lease plan that includes specialty gap insurance coverage so you won’t be forced to pay the balance from your own pocket.
- Insurance costs: Consider asking your insurance agent for a quote before you sign a lease. Since the car leasing company’s liability is greater than an individual, lease companies have to pay more for coverage – so they typically require you to carry higher levels of coverage.
- Length of the lease: On average, car leases will range from two to four years. If you end up leasing for longer than that, it may start costing you more because of maintenance costs and paying for things like new tires, brakes, etc. If you want to keep a car for longer than three years, which is what many experts advise the length of a lease should be, you should compare the cost of leasing to the cost of buying.
Just as with buying a new car, leasing a vehicle takes careful consideration. You need to know exactly what your lease will cover and be aware of possible hidden costs. It’s best to research thoroughly to determine if leasing is right for you. You can also check out our Auto Loan vs Car Lease Calculator to help you figure out which option makes the most financial sense.