Leasing instead of buying a vehicle has its benefits. Drivers who lease often cite the fun of getting a new car every few years and the peace of mind of knowing they won't have to deal with costly repairs associated with older vehicles as two of the best reasons to lease a vehicle.
While leases make practical sense for many drivers, the leasing process can be tricky to navigate. The following are a few things drivers should know about leasing before signing a new agreement.
* Avoid high down payments. Though many drivers are attracted to leasing because the monthly payments are typically much less expensive than they would if drivers financed a vehicle, such drivers should know that those low monthly payments are often accompanied by hefty down payments, sometimes as much as several thousand dollars at the time the lease is signed. But such hefty down payments can prove problematic if the car is damaged or stolen. In such instances, the insurance company is likely to reimburse the leasing agency for the value of the car, but not the driver. So the driver might be out his or her down payment and be left without a car. That's why it's beneficial for men and women leasing a vehicle to keep their down payments to a minimum, and ideally make no down payment at all. This will increase your monthly payment, but you will have the peace of mind of knowing you won't be out several thousand dollars should the car be wrecked or stolen during the lease.
* Purchase gap insurance. Another financial concern for lessees is what happens if the car is totaled or stolen. In such instances, the insurance company will reimburse the leasing agent for the value of the car at the time of the accident or theft, but drivers might still be on the hook for the total obligation of the lease. That means the value reimbursed to the leasing company will be subtracted from the remaining balance on the lease, and drivers will still be responsible for paying the difference. The only way drivers can protect themselves in such instances is to purchase gap insurance, which will cover the difference should the car be wrecked or stolen. Some leasing contracts already include gap insurance, but drivers should confirm this before signing the agreement.
* Buy extra miles in advance. Leases come with mileage restrictions, and an agreement that comes with an especially low monthly payment will often stipulate that drivers cannot exceed 12,000 miles per year over the life of the lease. If you exceed that limit, the agreement might charge you as much as 25 cents per mile over the limit, which can add up to a considerable amount of money depending on how many miles over that limit you go. If you know you are likely to exceed 12,000 miles per year, buy extra miles before signing the agreement. This won't cost you money up front, but rather will lead to a slightly higher monthly payment.
* Don't sign an agreement that's too long. The benefit of leasing is that you aren't still driving the car when it starts to exhibit the wear and tear that is inevitable with older vehicles. So drivers should limit the terms of their lease to two or three years, a period during which the vehicle will still be under warranty. Once the warranty has expired, it's time for lessees to move on to another vehicle. If your lease terms are more than three years, consider purchasing an extended warranty to cover the remaining years of the lease. But in general it's best to limit leases to three years or less, when the car is unlikely to need repairs and, even if it does, such repairs are likely to be covered by the manufacturer's warranty.