Instead of buying a new car, one option is to lease instead. Often an auto lease will require a smaller down payment and have lower monthly payments than financing the purchase of the same new vehicle. Before jumping on that lease to get the lower payments the buyer should consider several factors that may affect her financially.
Personal Credit
To lease a car you must have good personal credit. If you have had several car loans and always paid them on time, qualifying for a lease should be no problem. A limited personal credit history or a problem with late or missed payments will probably rule out approval for a car lease.
Mileage Limitation
Lease contracts are written with annual mileage limits of 10,000 to 15,000 miles per year. If the car is turned in at the end of the lease with high mileage, the excess mileage charges can be very high; up to 20 cents per mile. If a car was 10,000 miles over the contract limit when the car is turned in, the lessor would be required to write a check for up to $2,000. Leases can be initially set up with more mileage than the standard contract. If you know you will need more miles, find out the cost and have it included in the monthly payments.
Wear and Tear
Another charge that you can incur at the end of a car lease is an excess wear and tear charge. The leasing company expects a leased car to be returned in good condition, free of damage and only a normal level of wear. Different leasing companies are more or less strict on wear and tear charges. If you have a leased car, minor dings and dents should be repaired or you may be facing another large bill from the leasing company at lease termination.
Insurance
Leasing a car requires higher liability insurance coverage than the usual state minimums. The total liability coverage will be between $300,000 and $1,000,000, depending on the leasing company. The maximum comprehensive and collision deductible is $500. A car lease should also be covered by gap insurance. Gap insurance pays off the lease balance if the car is totaled. Some lease contracts include gap insurance. Others do not and the car dealership will sell it separately. Do not leave the dealership with your new leased car without gap insurance coverage.
Car Purchase Habits
Leasing cars is great for people who like to get a new car every two to three years. If the lessor stays under the mileage and takes care of the car, when the lease is up he can just turn in the car and lease another brand new car. Leases are not for those who lease just to get the low payment and then do not abide by the restrictions of the contract. It can be extremely expensive to get out of a lease early or pay excess mileage and wear and tear at the end of the contract or try to refinance the residual and keep the car.
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