Leasing and financing requirements are similar, although leasing is more restrictive. Leasing banks often require increased insurance coverage and limits, gap insurance and good to excellent credit. Before pursuing a lease, determine which information you can expect to provide your dealership and bank. If you're declined for a lease, you may have other options.
Contract Requirements
Leasing requires you to choose a term and mileage allowance. Most leasing companies allow lessees to choose from 10,000 to 18,000 miles per year and a term of 24 to 60 months. While you may not find these specific options advertised, most leasing banks allow you to adjust lease terms to fit your driving needs. Your contract will outline your mileage allowance and over-mileage fees. Read your contract thoroughly to assess termination, wear-and-tear and lease-end fees. You must pay for any items you agree to at the end of your lease.
License and Insurance
Expect to provide a valid license for the state where you plan to register your leased vehicle. As part of the leasing contract, the bank requires full-coverage insurance that you must maintain on the car throughout the contract term. Usually, this insurance consists of collision coverage, increased minimums for bodily injury and property damage coverage and lower deductibles than your insurance company allows. Proof of coverage listing policy limits and dates of policy term are required before you can take your vehicle from the dealership.
Gap Insurance
Some leasing banks require lessees to purchase gap insurance. In the event that your vehicle becomes a loss, your collision coverage will pay the vehicle's market value to the leasing bank. Because most leased vehicles are purchased at sticker price, depreciation only catches up with the car's actual market value around the end of the lease term, or about 3 years. Gap insurance pays the vehicle's total value to the leasing bank if it becomes totaled or stolen. The policy can cost less than $100 in states that cap the price, but more than $600 in states that don't.
Good to Excellent Credit
You must have good to excellent credit for lease approval. While you can often obtain an approval with an adjusted interest rate for a traditional finance when you have credit issues, leasing banks either approve buyers or they don't. Additional rate options aren't offered. You may also use a co-signer for your lease if you aren't approved. Leasing banks consider the co-signer's credit rating and income to determine lease approval. If you can't obtain a lease approval, you may want to pursue traditional financing to purchase the car instead.
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