9 facts you should know about car leases - My29 WFTC Minneapolis-St. Paul

By Andrew Housser

About 20 percent of new car transactions these days are leases. While car leasing has sometimes carried a bad reputation, it can be a smart move for some. A car starts to lose value or depreciate the minute you drive it off the dealer's lot. With each passing day -- and every added mile -- your car depreciates even more. When you lease, you pay for the use of the car or its depreciation in value from the wear and tear you put on it. Often, you can get more affordable monthly payments when you lease than if you buy or finance a new car. If you are wondering which route to take, here are some important considerations in leasing a vehicle:

1. Stay within budget.

One of the benefits of leasing is that it may allow you to drive a more luxurious or expensive car than you might otherwise be able to afford. That is not a reason to get a vehicle that's out of your price comfort and budget, however. Leasing a more affordable car with smaller monthly payments means more money in your wallet.

2. You don't need a loan.

Another benefit of leasing is that you do not have to take out a loan to finance the entire cost of the vehicle. Instead, you pay for the use of that vehicle for a specific period of time. Most leases last for two or three years. This means that you must make sure your budget can accommodate your monthly lease payment.

3. Your credit record matters.

You still might qualify for a lease if you have poor credit, but the down payment and monthly payments will likely be higher. You'll need to improve a poor credit rating before leasing a vehicle.

4. You should consider a down payment.

Even if your credit is good enough to warrant a "no-money-down offer," you can still make a down payment. Even just $1,000 upfront can greatly lower your monthly lease payments.

5. Shop around.

Just as you would when buying a car, it pays to shop around when leasing. Once you know the car model you want, you can visit several dealers and get multiple price quotes. However, monthly lease payments are based on the car's final agreed-upon price. To get the best deal, refrain from sharing your lease plans with dealers until after negotiating a purchase price. 

6. Negotiate.

Find out what new cars cost a dealer at Consumer Reports. Then negotiate up from the lowest price for the car with the options you need. Online sites such as CarLeasingSecrets.com can offer helpful information. Also check into whether your bank or credit union offers consumer leases.

7. Read the fine print.

Federal regulations require that certain facts be disclosed on lease agreements. Read carefully for information about interest rates, fees and taxes, the vehicle's residual value, and the amount to be depreciated. You'll also likely have to pay an acquisition fee of up to $500 and a disposition fee of $300 to $400.

8. Know the terms.

A car's mileage affects its resale value, which is why lease contracts often have an annual mileage limit of 10,000 to 15,000 miles. You can face hefty per-mile fees for exceeding this limit. You also can be penalized for excessive wear and tear on the vehicle and for breaking the lease early. Read the contract carefully before signing.  

9. Get gap insurance.

Guaranteed asset protection or gap insurance covers the remainder of your lease payments should your car be stolen or totaled in an accident. Many lease contracts require gap insurance. If yours doesn't, it is a smart idea to obtain it anyway.

Provided that you return the leased vehicle in good condition and within the mileage limits when your term is up, you'll owe nothing more. Then again, you won't own the vehicle, either. Most leases give you the option of purchasing the vehicle at the end of the contract at a predetermined price. However, the combination of lease payments and the end-of-lease purchase price may be more than if you had financed the whole purchase upfront. Check online calculators to figure out the cost of various options.