In recent times car leasing has become quite popular with individuals because of a number of reasons. When you lease a car you are normally not required to give a hefty down payment. The monthly payments are lower than buying the car outright and you can go in for the latest model every few years without the bother of having to sell off the old car first. However, you need to be very careful when negotiating your lease agreement and be aware of all the limitations else you will end up making mistakes that can prove to be very costly. Some of the top blunders you should take care to avoid:
Do Not Make a Large Down Payment
Many car dealers are not above asking customers to put down a substantial down payment right at the start of the lease term so that you can avail of the low monthly payments. The dealers can give you the low rates simply because they are using your down payment to pay off the lease in advance. Generally, this will not be a problem; however, in case your car meets with a serious accident or gets stolen in the initial months, this could be a cause of serious concern.
The leasing company would get reimbursed by the insurance company but it is unlikely that the leasing company would refund the down payment to you. The net result would be that not only do you not have a car but will be out of pocket by a large amount. It is best for you to insist on a no-down payment lease agreement but in case that is not possible, limit the amount to less than $2,000. Even if something were to happen to your car, your money will not be locked up with the leasing company.
Not Getting Gap Insurance
It is no secret that the value of new cars drops significantly after purchase, and leased cars are no different. If the car you have leased gets totaled or stolen your obligations to the lease company may not be met fully by the insurance payment. You would then have to pay the balance to the lease company from your own pocket. If the car comes with gap insurance then you do not have this problem. Make sure to ask before executing the lease agreement whether there’s gap insurance and if not look for a lease plan that provides for it.
Making the Lease Term Too Long
Depending on the model of the car, you should attempt to match the lease period to the number of years of the manufacturer’s warranty. Keeping a car on lease for a longer period can cost you substantially in higher maintenance costs as well as on buying an extended warranty. If you really plan to keep the car for longer than three years you should seriously look at buying it instead of leasing it.
You should also find out what the charges and penalties are going to be if you return the car ahead of the end date of the lease. Generally, these charges are so steep that it does not make sense to prematurely terminate the lease agreement. However, with the establishment of several online platforms like https://leasequit.com/ you can now offer your lease for purchase by someone who needs a low-cost vehicle. While the terms are very attractive do find out if your leasing company has any issues with this sort of a transaction.
Underestimating Mileage
One of the main reasons why many lease companies are able to offer very low monthly rates is because they build in very low annual mileage limits into the contract. This helps to preserve the car better and improves the resale value. Most lease contracts with low payments will specify mileage limits of 10,000 to 15,000 per year. Exceeding these limits will cost you anywhere between 10c to 30c per mile, which can work out to be pretty substantial at the end of the lease period.Ask for a higher limit, if you know that you will be driving more, but be prepared for a higher monthly payment too.
Not Properly Maintaining the Car
Lease contracts assume that the wear and tear on cars will be normal but if the car suffers damage beyond what can be termed as normal, you will be asked to either have it fixed before you return the car or pay a penalty depending on the leasing company’s assessment. The definition of normal wear and tear is very subjective and you can never be sure what your leasing company is going to say at the time of lease termination, however, it is best to go by the rule that while small scratches will not attract penalties, the bigger damage will definitely cost you.
Author bio: Tim Denver is an automotive journalist working for a reputed online auto journal. Tim writes extensively on car financing issues and has been following trends like the emergence of lease swapping platforms like https://www.leasequit.com/.
About Carson Derrow
