back to articles | December 31, 2018 | Dale Peterson

Categories: Leasing a Car

Auto Leasing - What to know

What to Know about Auto Leasing

Auto leasing is simply defined as paying for the portion of an automobile you use, called depreciation, for a specific amount of time. All automobiles begin to lose value as soon as they drive off the car lot. Barring unforeseen circumstances, the value loss can be charted, and therefore known, for each year the auto is driven.

When leasing an automobile you are paying for the difference between the adjusted capitalized cost (what the dealer paid, plus fees) and the residual value of the car at lease end. At the end of the lease you are able return it to the leasing company or choose to purchase the automobile for the residual value.

Automobile leasing is not complicated. Here are basics you should know:

What to Know about Closed End Automobile Leases

It's important to understand the parameters of your lease. Don't just focus on getting the automobile; make sure you understand your obligations during the beginning, middle and end of the lease. A closed end lease gives you the option to turn in your auto or purchase it. If you are turning in the auto, make sure you understand what shape the auto must be in at the lease end. Any excessive wear or tear can result in large penalties. Additionally, you must adhere to the mileage allowances for your auto or you could be stuck with a large overage charge.

What to Know about Open Ended Automobile Leases

Open ended auto leases require you to purchase the car at the end of the lease. The price you'll pay, called the projected or residual value, is determined at the beginning of the lease. Open ended leases are uncommon because they become expensive at lease end if the projected value is more than the fair market value. However, as a result of the risk, this kind of lease has extremely low monthly payments. If you know you will want to purchase your auto at the end of your lease and you are leasing an auto with a low depreciation schedule, this lease might be for you.

What to Know about an Automobile Lease Agreement

- Read your Lease agreement carefully. If you do not fully understand the agreement then don't sign it.
- Review it until you are very clear about the contract you are entering.
- Automobile leasing agreements are extremely hard to terminate.
- Make note of any restrictions such as mileage allowances.
- Double check all of the dealer's figures on the lease agreement or have someone else do so for you before you sign.

What to Know about Early Automobile Lease Termination

Early termination is where most people lose money on a lease. Carefully review the section of your auto lease dealing with this subject. The main thing to know is if you terminate your lease early, you will most likely end up paying the full leasing price of the auto plus fees anyway.

Make sure you understand how your lease will be handled if the auto is totally wrecked before the end of the lease. Your insurance company might not pay the full amount you owe after an accident if your auto has depreciated more than you've paid on your lease. Some leases offer GAP insurance to cover the difference. It's advisable to get GAP insurance to cover yourself, just in case.

How Wear and Tear Affects an Auto Lease

Be aware of the condition your auto is expected to be in when returned to the dealer. Many people don't get this point clearly defined in their contract and get stuck with large penalties at the end of their lease. Before you sign an auto lease get in writing what the dealer considers normal wear an tear.

It is important to keep your leased automobile in good repair. Keep up with scheduled maintenance and save your records. If you invalidate your warranty by not following maintenance recommendations, you could be paying large penalties at lease end. The best way to avoid penalties at lease end is to have a clear understanding of your auto lease as a whole before signing. is a good place to learn about your auto leasing options. Read through our leasing pages and use our leasing tools to help you pick the best auto lease for you.

Ten Auto Leasing Tips to Consider

According to the Office of the Attorney General, there is no such thing as a three-day cooling off period or cancellation rights when leasing or buying a new or used car. You are responsible to make all the payments once you sign a contract. So before leasing an automobile, consider the following auto leasing tips.

Auto Leasing Tip #1

Understand in advance that leasing an auto and exercising the purchase option plan is more expensive than buying an auto outright.

Auto Leasing Tip #2

When considering leasing an auto, it is wise to request disclosure of the capitalized cost and finance rate. Be sure to negotiate the lowest capitalized cost and financing rate possible.

Auto Leasing Tip # 3

Inquire and understand all pertinent information on all rebates, cash down, trade-in value, and all other payments toward the auto lease. These adjustments should be reflected in the cap cost.

Auto Leasing Tip # 4

Examine the extended warranties and do not purchase any additional contracts that duplicate the manufacturer's warranty or provide coverage beyond the lease term of the auto.

Auto Leasing Tip # 5

Look for extra products and services such as extended service contracts and credit and disability life insurance sometimes added into your auto lease payment by the dealer without your approval.

Auto Leasing Tip # 6

Be aware that some auto leases have specific conditions such as security deposits, leases longer than four years, additional charges for exceeding mileage allowances and auto leases that require you to purchase extra products and services.

Auto Leasing Tip # 7

Once all information is gathered, compare the total cost of leasing the automobile to the total price of purchasing.

Auto Leasing Tip # 8

If you have a trade-in, know the "blue book value" of the automobile by comparing the wholesale and retail prices in the Kelly Blue Book (KBB) or the National Auto Dealers Association (NADA). These guides are available at banks, credit unions, the library and the Internet, like You'll want your trade-in to be reflected in the auto lease transaction.

Auto Leasing Tip # 9

Understand that early termination or pre-payment of an auto lease are expensive options. When leasing an auto, you can't simply pay-off or turn the car back in.

Auto Leasing Tip # 10

As with any contract, do not sign an automobile lease agreement until you have read and understand all the terms thoroughly.

At we want you to know and understand all your automobile options. As in Tip # 7 to Auto Leasing, you should see the difference in cost between leasing and purchasing an automobile by applying for a loan online. There is no obligation or fee.