With interest rates low, now is a great time to buy a car. But if you’re not interested in a long-term commitment, leasing may be the better choice. When you sign a lease, you’re essentially financing the vehicle for a set period of time and when the lease is up, you hand the keys back over to the dealer. This can be a good option for people who aren’t interested in keeping a car for the long haul or those who want to trade up for a new model every few years.
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While leasing offers certain benefits, there are some potential drawbacks to consider before you sign on the dotted line. If you’re not careful, you could end up paying much more than you would if you were purchasing the vehicle instead. When you’re shopping around for a deal on a car lease, take care to avoid these potentially costly missteps.
1. Paying Full Price
If you were buying a new car, chances are you’d try to talk the salesman down a little on the price. The same should go when it comes to leasing. Even though you’re not planning to keep the vehicle for the long-term, you should still try to get the best deal possible.
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When you’re working out the details of your lease agreement, it’s easy to focus on just the monthly payment, but you need to pay attention to the bigger picture. If the dealer is charging you full sticker price for the car, you may not be saving as much as you thought. Getting even a $1,000 knocked off the price can make a big difference in how much you’ll pay over the lease term.
2. Putting Too Much Money Down
In order to guarantee customers the lowest payment possible, some car dealers will ask for a sizable down payment up front. Typically, this money goes towards paying off a chunk of the car lease. But ponying up all that cash early on doesn’t always work in your favor.
If the car is stolen or totaled in an accident during the first few months of the lease, the insurance company would reimburse the leasing company but there’s a good chance you’d be left out in the cold. Not only would you be short a vehicle but you’d also be out of the money you put down. Paying less up front or even nothing at all may make your monthly payment a little higher but you wouldn’t have to worry about coming up short if something were to happen to the car.
3. Underestimating Mileage
When you sign a lease contract, one of the stipulations you’ll have to agree to is how many miles you can put on the car. Typically, mileage is capped at anywhere from 12,000 to 15,000 miles a year. If you exceed the limit, you’ll have to pay a fee for every mile you go over. Depending on the leasing company this could be as much as 25 cents per mile, which can quickly add up if you’re constantly on the road.
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Before you agree to a lease, it’s important to assess your driving habits carefully to make sure the limits are feasible. If you think you might end up going over, you could ask the dealer to increase your mileage limit. Just keep in mind that it’ll still cost you. Either your monthly payments will go up to reflect the higher limit or you’ll be asked to prepay in advance for potential overages. If you have to prepay, make sure you include a clause in the lease that allows you to receive credit back for any unused miles.
4. Keeping the Car Too Long
Leasing is meant to be a short-term commitment. If you’re signing a lease for longer than three years you could be setting yourself up for trouble. Generally, lease agreements include a vehicle warranty that’s good for a specific amount of miles. The longer the lease term, the more likely you are to be on the hook for maintenance or repairs that aren’t covered once the warranty expires.
If you do decide to take on a four or five year lease, it may be worth it to invest in an extended warranty to help cover some of the added cost. Otherwise, you run the risk of having to put even more money into a car that you don’t actually own.
5. Forgetting About the Fine Print
Just like any other contract, you need to read over the fine print carefully before you finalize the agreement. For example, dealers will typically include specific details as to how the car must be maintained during the lease period. A tiny scratch may not seem like a big deal but it could end up costing you big if you get hit with a penalty when you turn the car in. It pays to know exactly what you’re getting yourself into before you drive off the lot.
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