Signing a lease is a great decision for many drivers, but that doesn’t mean mistakes can’t be made. We came up with the top 5 biggest mistakes people make when signing their lease, and how to avoid them, to make sure our audience has the best experiencing leasing as possible.
Leasing is becoming more and more popular as the price of buying a car increase. On average, cars cost $32,500 according to USA Today. Now the buyer is stick with a high monthly payment after spending $5,000 on the upfront deposit.
Leasing, on average, leads to lower monthly payments and does not require a down payment. However, there are a few things that can cause a lease to end up costing you more down the road.
To protect our readers from this kind of mistake, we got together the 5 biggest mistakes people make when signing their lease.
1. Paying Too Much Upfront
When you first go into a dealership to get your lease, they may offer you some lower monthly rates. In order to earn these lower rates, you need to pay some upfront cost.
Car dealers advertise low monthly lease payments on new vehicles, but you’d probably have to pay several thousand dollars upfront to get that payment. That money covers a portion of the lease in advance.
To many, this seems like a great idea. Put up some upfront cash and enjoy lower payments for the duration of the lease. What’s not being considered here is the chance of wrecking the car or it getting stolen early in the lease. This would mean you paid much more than you would have if you didn’t put anything down initially.
Generally, it’s recommended that you don’t put down more than $2,000 upfront. Many however recommend not putting up anything at all. There is no mathematical advantage to paying more upfront, so there’s no need to take the additional risk.
Instead of paying thousands of dollars upfront, put that money in an interest generating account. You’ll earn money over the course of the lease instead of giving it to the dealership.
2. Not Buying Gap Insurance
At the end of your lease, you have the option to buy the vehicle. Its cost is based on its residual value. So if the residual value of the car is $10,000, then you pay that amount to the dealership and you own your car.
But, as we discussed above, if something happens to the vehicle you may end up owing the dealership money. In the unfortunate situation of an accident, the insurance company and the dealership may have a disagreement on the value of the vehicle.
GAP insurance makes sure that, in the case of a discrepancy, you don’t get stuck with paying the difference. The appropriately named GAP insurance pays the gap between the insurance company’s value of the car and the dealership’s value of the car.
3. Underestimating Your Average Mileage
The end of a lease agreement is when you have to pay any fees incurred by violations of the lease agreement. When drivers underestimate how many miles they will drive under their lease the fees they have to pay almost outweigh the benefit of leasing.
Lease agreements with low monthly payments usually equate to tight mileage agreements. It makes sense because if you don’t drive your lease a lot then it’s fair for the dealership to charge you less.
Typically annual mileage limits range between 15,000 and 10,000 miles. Before you sign a lease, check your average mileage. What’s your annual range? If you fall somewhere in this range then you don’t have to worry about any mileage penalties.
The key here is figuring out what your annual mileage is beforehand. This can be difficult if you haven’t already started keeping track. If you happen to know what the exact mileage was of your vehicle once you started driving, some mathematics should be able to get you the right number.
Even for those who drive more than average, a lease agreement can still be a viable option. You can pay higher monthly payments in exchange for more flexibility with your mileage cap. This is a good strategy to get the benefits of a lease agreement while still being able to drive without worry.
4. Not Maintaining The Car
Rule of thumb is to always maintain your vehicle as best as possible. This is the best way to ensure no problems with your dealership at lease end. But, of course, it doesn’t always work out this way.
Normal wear and tear on your lease is acceptable by most dealerships and lease agreements. However, there are limits here as well. Large scratches, dents, and other obvious damage to the car will be charged to you by the end of the lease.
Every lease agreement is different. They may have some specific dimensions that apply to the size of scratches and dents. Be aware of these dimensions because they can mean the difference between a hefty fine and nothing at all.
It’s always good to be extra cautious when driving a lease because at the end of the day it’s still the dealership’s vehicle. Do your best to buff out or repaint the dents and scratches you acquire during normal wear and tear. This upfront investment in maintenance can save you big time at lease end.
5. Leasing a car for too long
The longer you lease your vehicle the more risk you take on. It’s just a matter of statistics that at some point, the longer you drive, the higher the likelihood there is for an accident, above average wear and tear, and mileage violations.
The end of the vehicle’s warranty may also be a factor here. If you drive your lease for over 40,000 miles in total, there’s a very good chance you will exceed the warranty.
Once this happens you will be responsible for any repair/maintenance costs. This can sour a good lease deal very quickly. You can end up investing in a vehicle you don’t even own.
The longer you drive your lease the more ownership becomes a more attractive idea. So if you know you don’t want to own, leasing for too long may put in a position where it would be foolish to not buy.
All these factors are major considerations everybody should make before signing a lease. Being smart about your lease reduces risk and saves you a lot of money in the long run.
If you have any questions, do not hesitate to contact us here.