Vehicle Finance Lease Agreement

Most consumers want to drive new vehicles. For some, it represents their success. For others it's simply convenient and cost-effective: new cars don't break down and do not require expensive maintenance. However, not everyone can afford a monthly payment on a new vehicle but most can lease one for a fraction of it. Before signing a lease agreement, a consumer must pay attention to financial details, lease terms and optional services.

Financial Terms

Negotiating is a must whether you are purchasing or leasing a vehicle. Your monthly payments depend on the agreed price of the vehicle. A trade-in, if you have one, will bring the agreed price down. The lease agreement will also list the interest rate or the annual percentage rate (APR). This value also determines how high or low the monthly payments will be. Interest rates may be fixed or variable. Fixed rates remain the same throughout the lease term. Variable rates may change quarterly, semi-annually or annually. Other items that may increase a monthly payment are service contracts, guaranteed asset protection and credit insurance.

Mandatory Options

When reviewing a lease contract, it is essential to understand which items are mandatory and which are optional. Most lenders require a lessor to purchase a guaranteed asset protection (also known as GAP) contract. If an accident happens, an insurance company pays what it considers to be a fair market value of the vehicle. This amount may be less than the amount owed on the vehicle at that time. New vehicles may lose as much as 20 percent of their value in the first year. So, the insurance pay-off and the amount owed may differ by hundreds or even thousands of dollars. This is where a GAP protection steps in and pays off the difference.

Optional Items

Service contracts may be a good option to buy if the dealer does not offer free maintenance for leased vehicles. A dealer may offer some services but not all. You may want to calculate whether a service contract will be cost-effective before purchasing one.

Credit insurance is another option that is not mandatory. Credit insurance usually includes credit life, credit disability and credit unemployment insurance. A credit life plan pays off your lease if you die. Credit disability plan makes your monthly payments if you become temporarily disabled and unable to work. Credit unemployment covers your payments if you become involuntarily laid off. You may buy one, all or none of these plans.

Lease Terms

The financial contract will list the length of the lease contract. It will list the terms for early termination if one is possible. Most lease contracts allow early termination but charge high penalties for it. It will list end-of-lease options. A lessor can purchase the car at the end of the lease contract. This section of the financial agreement will list the price and other terms of purchase. It will also list the terms for vehicle return and any charges that a dealer may collect upon the vehicle return.