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Practical tips to consider before deciding on a lease
- Read the fine print! Familiarize yourself with all of the fees and charges. These may include destination, registration fees, security deposits, and end-of-lease service charges. Don't be seduced by "Zero down, "$99 a month", or other low payment offers. Calculate the total cost of leasing the vehicle.
- Be aware of new leasing laws, and the information dealers are required to legally disclose before you sign a lease. In 1998, the government passed the 'Consumer Leasing Act,' which regulates the exact information an auto lessor must provide you, the consumer. For example, the dealer or leasing company must disclose:
- All fees, taxes and insurance requirements.
- All your maintenance responsibilities, the exact standards for "wear and tear," and the terms of your warranties.
- Your option to buy the car at the end of the lease
- All late payment charges, security interests, and what you will be charged if you terminate the lease early.
- Some of the info, called "segregated disclosures," MUST appear on your lease. Other information you MUST be given will not have to appear on any one place on your lease, or on the form the dealer gives you to sign. Review a sample leasing form to familiarize yourself with typical fees and terms.
- Shop as if you're buying a car. Establish and set the price before negotiating other aspects of the lease. Avoid having the selling price determine your other lease arrangements. Get all the terms in writing. Don't be dazzled by components of the deal, and nail down all the details. Remember: different parts of a lease can be negotiated. Configure different monthly payments, money down, etc. to get the best overall deal. Ask for alternatives to advertised lease specials.
- The up-front cost, which includes the capitalized cost.
- The monthly payment.
- How long the lease lasts.
- The agreed-upon value of the car. A lower price reduces the monthly payments.
- All charges due at lease-end.
- Mileage allowed, and what you're charged if you exceed it.
- Whether the lease includes "gap" insurance coverage, which protects you if it's stolen or totaled.
- The option to buy at lease-end or earlier
- Choose a car that holds value well. Leasing can put you into a wildly luxurious car, but it's not always a deal if it's prone to steep depreciation.
- Be sure to get a closed-end lease to avoid paying if the residual and market value of the car doesn't tally when the lease is over. Then, at lease's end, you may be in the happy position where the residual value is lower than actual market value, allowing you to buy the car at a profit. Almost all auto leases are "closed-end" now.
- Beware of "wear-and-tear" costs. Charges for damage and rough treatment can be steep. Determine whether there will be extra charges for excessive mileage, disposition and early termination.
- Know that if you opt to buy at the end of the lease, it will usually end up costing you more than financing a new car from the get-go. If you really want to own, consider buying from the onset. Read our How a Loan Works and Loan versus Lease articles.
- Consider so-called "gap insurance" to cover the difference -- which can be thousands of dollars -- between what's due on the lease and what the car is worth if wrecked or stolen.
- Take your time; read the contract carefully. Don't let the sales rep put apply any pressure or time constraints. Walk away if they try to make you hurry up.
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