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Publish Date - December 31, 2018

Author: Dale Peterson

Categories:   Leasing a Car   

New Car Leasing FAQ

Frequently Asked Questions About Leasing a New Car

If you are thinking about leasing a new car you probably have lots of questions. We gathered the questions our customers asked most frequently to help others seeking answers about new car leasing.

Contact us at if you need additional information you don't see on our site. We will be happy to provide answers to any questions not covered in our FAQ.

FAQ # 1: What's the Difference Between a New Car Lease and Loan?

A new car lease usually has lower monthly payments than a new car loan because you are only paying for the time you drive the car. Instead of getting a loan based on the whole purchase price of the car, you are borrowing only the amount you need for how long you keep the car. When you get a loan to purchase a new car, your down payment and monthly payments go toward the entire purchase price of the car.

With a car loan you will own the car after you finish making payments. With a new car lease you aren't encumbered with an aging, out of date car. After your new car lease is up you are free to turn it in and get a brand new car to drive.

FAQ # 2: How Do New Car Leases Work?

A new car lease begins with the understanding that you will return the car in good condition to the leasing company at the end of your lease. New car leases usually come with mileage limitations to insure a car isn't exposed to excessive wear and tear during the lease.

After choosing the new car you want you will apply for a loan and negotiate the terms of your lease through a car leasing company or dealer. A very convenient way to begin the leasing process is to do so online. There are no car salesmen to deal with face to face and you don't have to spend all day sitting in a car lot's finance office.

You should carefully review your car lease before signing. After making sure everything is on the lease is as agreed, sign, send and your car will be delivered.

Understand that it is very difficult to get out of a lease before it is over. Make sure you choose the car you want wisely. Should you decide to terminate your new car lease early you will most likely face stiff penalties.

FAQ #3: How are Leases Calculated?

Calculating a lease is not difficult equation but it does require you to understand some new terms. A new car lease agreement includes 3 important variables: the money factor, adjusted capitalized costs and residual value.

  • The Money Factor is like the interest you would pay on a new car loan. It represents the cost of the money borrowed on your behalf by the leasing company.
  • The Adjusted Capitalized Cost includes the car's purchase price, and any fees and taxes minus discounts, trade ins and down payments.
  • Residual Value is the expected value of the car after the end of the lease. Residual value is based on industry guidelines, the length of the lease and the amount of miles the car is expected to be driven.

FAQ # 4: What Are My Options When the Lease Ends?

After the lease ends the car is no longer your responsibility. You can turn the car in, choose to purchase the car, trade the car or sell it privately. Each choice comes with certain responsibilities, so explore all of your options before making a decision.

Turning the car in – Before you turn your car into the dealer, review your leasing contract carefully. You may be responsible for returning the car in a certain condition. Any repairs should be made before lease end to avoid penalties or excessive repair charges. Have the car detailed and in the best condition possible.

Check your contract for mileage restrictions. If you've gone over your allotted miles it might be beneficial to look at other options like purchasing the car and then reselling it to another buyer.

Some lease contracts include a drop off fee of a few hundred dollars, so be prepared.

Buying the car – Some leases are open ended, which means a buy out price was predetermined at the beginning of your lease. This number is usually negotiable. Research how much you could buy your car for at another dealership and what a dealer would pay for your car at auction before you negotiate a buy out price. A car can usually be bought for the lease-end value plus fees.

Selling the car privately – Sometimes it is a good idea to see what you could sell the car for privately before deciding to turn it in. You are only responsible for returning the lease-end value, or balance owed, for the car to the leasing company. You can keep any profit you make after paying the leasing company but you are also responsible for any deficit.

Trading the car – You can chose to use your lease car as a trade in for a new lease. Once the dealer determines the car's value, it's applied to the balance owed. The price of your new lease will be less if you had money left over, but it could also be more if you have a deficit.