Leasing usually offers a cheaper payment than financing. Despite the lower payment, leasing is restrictive. Expect mileage, wear-and-tear and term requirements in your lease contract. Before pursuing a lease, consider its various restrictions and the possible penalty fees you can face once the lease is over.
Mileage
You can choose the mileage allowance for your lease contract. Most leasing banks allow mileage adjustment anywhere from 10,000 miles to 18,000 miles per year. Advertisements often display the lowest mileage option because it allows the leasing bank to advertise a low monthly payment. If you increase your mileage allowance beyond 15,000 miles per year, the lease payment becomes similar to a finance payment. As a result, the lower payment that leasing usually offers is no longer beneficial. If you go over your mileage allowance, expect to pay penalty fees of 10 cents to 18 cents per mile beyond your allowance amount.
Term
Leasing terms are also flexible. Despite advertisements, you can often choose a term of 24 months to 60 months. If the 39-month option offers a cheaper payment, ensure your vehicle remains under warranty during the lease term. Most factory warranties run from three years or 36,000 miles, whichever comes first. During the last three months or additional mileage that you're out of warranty, you are responsible for repairing your vehicle before its return. You may also have a difficult time getting out of your contract if you need to; most banks charge an early termination fee in addition to any payments due until the end of the contract term.
Down Payment
The effect your down payment has on your lease payment is substantial. Every $1,000 you put toward your lease takes about $30 off of your monthly payment. However, you do not have to provide additional money beyond your monthly payment amount. To lease a vehicle, the bank requires that it become your insurance policy's loss-payee, meaning you won't receive any of your down payment or money back if your vehicle is totaled or stolen. Providing a down payment may seem beneficial because of your monthly payment decrease, but you can potentially lose that money if you sustain a vehicle loss.
Other Contract Requirements
Some leasing banks require lessees to purchase a gap insurance policy, which covers the difference between the payoff of your leased vehicle's total cost to the bank and its market value if you incur a loss. A gap insurance policy can easily exceed $600. You must also maintain and repair your vehicle as needed or face fees upon returning the car. If you exceed the bank's wear-and-tear allowance, expect to pay for any necessary repairs or wear-and-tear that decreases the vehicle's market value.
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