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Car leasing allows you to drive a newer vehicle every few years, and it can save you $148 per month in monthly payments on average compared to a car loan, according to Experian data. But a lease also comes with mileage limits, maintenance requirements and fees that may not be obvious when you're comparing monthly payments.
The choices you make before signing can affect what you pay upfront, throughout the lease and when you return the car. Understanding which costs are negotiable and which contract terms deserve a closer look can help you avoid surprises. Here are the most important do's and don'ts of leasing a car.
What to Do When Leasing a Car
Here are some of the ways you can set yourself up for success when leasing a car.
Do Understand the Terms
Before comparing offers, learn how car leasing works and go over common leasing terms. Make sure you understand how the dealer calculates your payment, which costs are negotiable, and what you may owe upfront or at the end of the lease. This will help you evaluate offers and potentially avoid surprises.
Do Check Your Credit Score
Your credit score impacts whether you'll be approved for a lease and the terms you receive. Generally, people with good to excellent credit may qualify for a lease and get the best terms.
If possible, consider improving your credit score before applying for a lease. With a lower credit score, you may be required to make a down payment.
Learn more: What Credit Score Do I Need for a Car Lease?
Do Compare Offers
Request quotes from at least three dealerships, using the same vehicle, lease term, mileage limit and upfront payment for each. Compare all of the costs of leasing rather than just focusing on the monthly payment. This can help you spot the best offer and gives you leverage to negotiate with your preferred dealership.
Do Compare Leasing With Buying
If you're open to both scenarios, calculate what leasing versus buying a car would cost over the period you expect to keep the car. A lease may offer a lower monthly payment, but your payments won't build ownership in the vehicle, and you could owe fees when you return it. Buying generally costs more per month, but you'll own the car once the loan is paid off. An auto lease calculator can help you decide whether to lease vs. buy.
Do Negotiate
The car dealer calculates your monthly lease payment based on the car's capitalized cost (the agreed-upon sale price of the vehicle plus any rolled-in fees) minus its residual value (the estimated worth of the vehicle at the end of your lease term). You pay the difference between those numbers, but negotiating a lower car price and higher residual value will help you save money. Dealerships may also be willing to negotiate other details, such as:
- Mileage limit
- Lease period
- Money factor
- Down payment amount
- Trade-in value
- Purchase value
Do Confirm What Your Gap Insurance Covers
Gap (guaranteed asset protection) insurance may cover the difference between your insurance payout and the amount you owe if the leased car is stolen or totaled. Because some leases already include this protection, check your agreement before buying separate coverage. Review any deductible, exclusions and limits, and find out which costs you would still have to pay after a total loss.
Do Choose a Lease Term That Fits Your Plans
Choose a lease term based on how long you realistically expect to keep the car, rather than which option produces the lowest payment. Ending a lease early can trigger substantial fees, and the earlier you leave, the more it may cost. Before signing, consider whether any life changes could affect your needs during the lease.
Do Get an Insurance Quote Before Signing
Car insurance on a leased vehicle is often more expensive than a policy for a vehicle you buy with a loan. That's because leasing companies typically require you to buy collision and comprehensive coverage and set higher liability limits than your state mandates.
Ask the leasing company for its coverage requirements, then request an insurance quote for the vehicle you're considering. You can compare quotes from insurers with Experian's auto insurance comparison platform. Add the insurance cost to the lease payment to get a realistic estimate of your monthly cost.
Learn more: Minimum Car Insurance Requirements by State
Do Review Available Rebates and Lease Incentives
Automakers and dealerships may offer rebates, credits, loyalty bonuses and other incentives that reduce the amount you pay. Ask which offers you qualify for, whether they can be combined and how each one affects the capitalized cost or amount due at signing. Before signing the contract, confirm that every promised rebate and discount appears in the written agreement.
What Not to Do When Leasing a Car
Leasing can get costly if you don't pay attention to the details. Here's what you should avoid when leasing a car.
Don't Ignore Regular Maintenance
Leases allow for normal wear and tear, such as a few small chips or scratches on the door. But things like cracked windows, large dents or torn upholstery may result in extra charges. The dealer will inspect your car for any damage before the lease is up.
Before you start driving the car, review the leasing company's standards for maintenance and what it considers normal and excessive wear. This can help guide how you use the car and schedule maintenance and repairs. Create a log to track any work you complete, and keep itemized receipts.
Don't Forget to Read the Fine Print
Under Regulation M, the lessor is required to include certain details in your lease agreement. It's important to read through it, make sure you understand the details and ask questions before signing. Some of the most important pieces to find:
- Lease term and monthly payment
- Amount due at signing
- Capitalized cost and residual value
- Total lease cost, including taxes and fees
- Mileage limit and excess-mileage charges
- Maintenance requirements and wear-and-tear standards
- Early termination terms and purchase options
Don't Pay for Add-Ons You Don't Need
Dealers may offer extended warranties, service contracts, wheel protection and other add-ons when you arrange the lease. These add-ons can increase your upfront costs or monthly payment, and you may already have similar coverage elsewhere. Ask what each product costs and whether it's required. Before signing, check the agreement and ask the dealer to remove any add-ons you didn't request.
Learn more: Should You Buy an Extended Warranty for a Car?
Don't Roll Negative Equity Into the Lease
If you owe more on your current car than it's worth, the dealer may offer to include the difference in your new lease. This can increase the amount built into the agreement and make the lease more expensive. Before trading in your car, compare its value with the loan payoff amount. If you have negative equity, consider paying down the balance first.
Don't Automatically Return the Car at Lease-End
Returning the vehicle may be the simplest option, but check its market value and buyout price first. If the car is worth more than the buyout amount, you may have lease equity you can use toward another vehicle, depending on the lessor's rules. You could also buy the car and keep it. Review whether buying out the lease makes sense before deciding.
Don't Modify the Car Without Permission
Your lease may restrict changes to the vehicle or require you to reverse them before returning it. Check the agreement before tinting the windows, replacing the wheels or installing aftermarket equipment. Restoring the car could add to your costs, even if a modification can be removed. Permanent changes that don't meet the lessor's return standards may result in excess wear-and-tear charges.
Pros and Cons of Leasing a Car
Leasing can make sense if you value lower monthly payments and like driving a newer car every few years. But mileage restrictions, potential fees and the lack of ownership may make buying a better choice.
Pros
Potentially lower monthly payments: Lease payments generally cover the vehicle's expected depreciation during the lease term, plus rent charges, taxes and fees. As a result, leasing may cost less per month than financing the same vehicle.
Lower upfront costs: A lease may require less money upfront than an auto loan, depending on the offer. Some leases require little or no down payment.
Access to newer vehicles: Because leases commonly last two to four years, you can regularly switch to a newer model. The vehicle may also remain under the manufacturer's warranty for most or all of the lease term.
Cons
Don't build ownership: Your payments allow you to use the vehicle, but you won't own it when the lease ends. You may always have a car payment if you decide to lease exclusively.
Mileage and use restrictions: Leases typically limit annual mileage and may restrict modifications and require specific maintenance. Exceeding the mileage allowance or returning the car with excessive wear can result in additional charges.
Ending a lease early can be expensive: You can't just simply return the vehicle and stop making payments if your needs change. Early termination may trigger substantial fees.
How to Lease a Car
If you decide leasing fits your budget and driving needs, here's how to get started:
- Choose a vehicle. Research vehicle models that tend to retain their value. These may come with lower payments because you're paying for less depreciation. After test-driving a few, choose the one you want to lease.
- Review your credit. Check your credit report and credit score before you apply. Having good credit can help you qualify for the lease and receive favorable terms.
- Review your mileage. Estimate how much you typically drive, including commuting, errands and road trips. This can help you choose an annual mileage allowance that matches your habits and potentially avoid excess-mileage or early termination charges.
- Compare lease offers. Request quotes from at least three dealerships using the same details. Choose the dealership that offers what you're looking for.
- Negotiate the deal. You may be able to negotiate the details of your lease, such as the vehicle's price and mileage allowance. It may be easier to negotiate during certain times of the year, such as before a new car model arrives or at the end of the year.
- Review and sign the agreement. Read the entire contract to ensure the terms match the offer you accepted. The contract must include details like the amount due at lease signing, the total amount you pay for the lease and other charges if applicable.
Frequently Asked Questions
Do I Need Insurance for a Leased Car?
Yes. Nearly every state requires drivers to carry a minimum amount of car insurance, and leasing companies typically require more coverage than state law does. You may need comprehensive and collision insurance, higher liability limits and gap coverage. Check your lease agreement for the exact requirements, and find out whether gap protection is already included before buying it separately.
What Aspects of a Car Lease Can I Negotiate?
You may be able to negotiate the vehicle's capitalized cost, money factor, mileage allowance and certain fees. The lease term, amount due at signing and value of a trade-in may also be negotiable. The residual value is generally set by the leasing company, but comparing offers from several dealerships can help you find a vehicle and lease structure with a more favorable residual value.
Can I End My Lease Early?
You can usually end a car lease early, but doing so may be expensive. Depending on your agreement, you might have to pay an early termination charge and cover the difference between the car's value and your remaining lease balance. Other options may include transferring the lease, buying the vehicle or trading it in, if your leasing company allows them.
Is It Better to Lease or Buy a Car?
The better option depends on your budget, driving habits and how long you plan to keep the vehicle. Leasing may suit you if you want a lower monthly payment and prefer driving a newer car every few years. Buying may be a better fit if you drive a lot, want to customize your car or plan to keep it after the loan is paid off.
The Bottom Line
It's possible to get a great deal on a car lease, especially when you know what to expect. Having good credit can set you apart from other applicants, which helps you qualify for the lease and receive good terms.
Worried that your credit score is too low to get a good deal on a lease? Check your credit report and FICO® Score☉ Θ for free through Experian, and view the factors that are affecting your score.