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How Does Leasing a Car Work?

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It’s vital to understand the nuances of a car lease before you make a deal. Sure, driving a new car — usually without an obligation to buy it — is one reason why leases are a popular option. Some people erroneously liken auto leasing, which has terms that generally range from three to five years, to apartment leasing. The basic concept is the same, but there are vital differences. Before you move ahead, consider these points to learn how auto leasing works.

Related: How Do I Calculate if a Lease Is a Good Deal?

Monthly Payments

When you lease a car, its depreciation is factored into your total cost. In a lease, you’re paying the amount that the car depreciates over the length of the lease (plus interest and other fees) rather than the whole price of the car. You can expect to pay less for a vehicle that’s leased than one that’s financed. Of course, you don’t own a leased car at the end of the term.

Down Payment

When you lease a car, you generally pay a much lower down payment than if you finance one. That doesn’t mean you can’t make a larger down payment when you lease. A high down payment is not a negative when you lease; it lowers your overall payment and safeguards you in case the car is totaled or stolen. If that were to happen, you’re obligated to pay the full value of the car.

Gap Insurance

You may need to carry more insurance coverage. You likely also want to ensure you have gap insurance — if it’s not included in the lease — in case the leased car is totaled or stolen. Again, if either of those two things happen, you’re obligated to pay the value of the car.

Maintenance and Repairs

New leased cars are covered by warranties, often for the length of the lease. Normal maintenance and repairs are generally not covered unless your car comes with a complimentary maintenance program from the factory. Previously, these free maintenance programs were more common in luxury cars than non-luxury, but now even budget-conscious brands like Mitsubishi and Honda are adding these to sweeten the deal. That being said, if you incur damage to the vehicle — say, scratch the paint, stain the upholstery or crack a mirror —  it won’t be covered under a warranty or maintenance program, and you’ll be required to pay for the repair.

Mileage Restrictions

If you lease a car, you will likely have a mileage limit of 10,000 to 15,000 miles (the average is 12,000 miles) annually, and every mile over that limit may cost anywhere from 10 to 25 cents. Stories abound about drivers who leased cars, hit the mileage limit months before the lease ended and basically kept the car parked until the lease expired. There are leases that allow for high mileage, but you’ll pay more for them. It’s better to ask about a higher-mileage lease, though, if you’re concerned about limiting your mileage.

Damage

As mentioned earlier, you can also be on the hook for damage to the leased car. That doesn’t just mean major scrapes — it also means dents, dings, stains, “curbed” wheels and more. Some lease owners have their cars detailed (or at least washed and waxed) before they return them; others pay third parties to repair damage. Of course, that can actually lead to more damage if the repair is not done properly in the opinion of the inspectors.

Negotiations

As with buying a car, everything on a lease is negotiable. There are many ways to cut costs when leasing, such as bargaining on the total payment, fees and more. You can check out our in-depth guide to negotiating on an auto lease here, but it certainly helps to research comparable lease offers in the area that you can refer to in your negotiations.

Lease-Specific Lingo

To get the best possible deal, you’ll also need to walk into the dealership knowing all of the terminology you’ll encounter with leasing, which is different from the terms used when buying a car. You can familiarize yourself with important auto lease terms using Cars.com’s glossary, including:

  • Closed-end lease: The most common type, which does not require the lease to buy the car at the end of the term.
  • Residual value: The worth of the car at the end of the lease.
  • Single-payment lease: Just as you can pay cash to buy a car, you can pay the total lease amount and fees. The positive: You often pay less because the company gets its money up front.

After all, it’s hard to bargain for a great deal if you’re not speaking the same language.

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Cars.com’s Editorial department is your source for automotive news and reviews. In line with Cars.com’s long-standing ethics policy, editors and reviewers don’t accept gifts or free trips from automakers. The Editorial department is independent of Cars.com’s advertising, sales and sponsored content departments.

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