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A Guide to Car Leasing: 5 Common Mistakes to Avoid

Image via Flickr by jk5854

Image via Flickr by jk5854

If you’re thinking of leasing a car, there are a few things you need to know that may differ from traditional car-buying. Understanding the five, common mistakes people tend to make when car leasing can help avoid additional, and costly, unexpected charges during the terms of your lease.

Paying Full Price

Just like buying a car, negotiating the price of a lease is possible. However, most people will negotiate down from the sticker price. By doing some research in advance, you can find out what the dealer actually paid for the car and negotiate up from there. Negotiating from the dealer’s price can save you thousands of dollars over the term of the lease.

Paying Too High of a Down Payment

When you lease a car, the car is purchased from the dealer by the leasing company for the price you negotiated. People typically put down several thousand dollars toward the price of the car in order to lower the monthly payments. However, if your car is stolen or totaled in an accident soon after leasing your car, the insurance company will reimburse the leasing company for the value of the car, but will most likely not compensate you for your down payment. If you have enough money for a substantial down payment, put it into an account where it can earn interest, and use it towards future monthly payments.

Not Having Gap Insurance

When leasing a car, you need to make sure your leasing contract includes gap insurance. Gap insurance will pay the difference between what the car is worth and how much you still owe the leasing company in the event that the car is stolen or totaled in an accident. Without gap insurance, you will be on the hook for the difference, which could be thousands of dollars.

Keeping the Car Past Its Warranty

Lease agreements generally include a warranty for a specific number of miles, usually the equivalent of about three years. If you keep the car after the warranty is up, you will be responsible for any maintenance and repairs not covered once the warranty expires. After three years, the maintenance and repairs on a car can get pricey, and you need to remember you’re putting your money into a car you don’t own.

Being Unrealistic About Your Mileage

Leasing contracts have a maximum number of miles that may be driven per year, generally ranging from 10,000 to 15,000 miles annually. If you underestimate your mileage, you can find yourself having to pay a hefty fee upon the end of your lease. If you drive 5,000 miles over the limit at 18 cents a mile for three years, you’ll owe the leasing company $2,700 upon turning the car in!

Although leasing a car may be a new experience, it has many advantages. However, leasing will only be of value if you don’t make the common mistakes many people make when leasing a car. By knowing what you should do, leasing can be a valuable choice over buying.