A Consumer Guide to Vehicle Leasing |
Under the federal Consumer Leasing Act, you, the consumer, have a right
to information about the costs and terms of a vehicle lease. This information will help
you compare lease offers and negotiate a lease that best fits your needs, budget, and
driving patterns.
This consumer guide is for a closed-end lease, the most common type of vehicle lease.
With a closed-end lease, you may return the vehicle at the end of the lease term, pay any
end-of-lease costs, and walk away.
| Ownership |
| LEASING: You do not own the vehicle. You get to use it
but must return it at the end of the lease unless you choose to buy it. |
BUYING:
You own the vehicle and get to keep it at the end of the financing term. |
| Up-front costs |
| LEASING:
Up-front costs may include the first month's payment, a refundable security deposit, a
capitalized cost reduction (like a down payment), taxes, registration and other fees, and
other charges. |
BUYING: Up-front costs include the cash price or a down payment,
taxes, registration and other fees, and other charges. |
| Monthly payments |
| LEASING: Monthly lease payments are usually lower than monthly loan
payments because you are paying only for the vehicle's depreciation during the lease term,
plus rent charges (like interest), taxes, and fees. |
BUYING: Monthly loan payments are usually higher than monthly lease
payments because you are paying for the entire purchase price of the vehicle, plus
interest and other finance charges, taxes, and fees. |
| Early termination |
| LEASING: You are responsible for any early termination charges if
you end the lease early. |
BUYING: You are responsible for any pay-off amount if you end the loan
early. |
| Vehicle return |
| LEASING: You may return the vehicle at lease end, pay any end-of-lease
costs, and “walk away.” |
BUYING: You may have to sell or trade the vehicle when you decide you
want a different vehicle. |
| Future value |
| LEASING: The lessor has the risk of the future market value of the
vehicle. |
BUYING: You have the risk of the vehicle's market value when you trade or
sell it. |
| Mileage |
| LEASING: Most leases limit the number of miles you may drive (often
12,000-15,000 per year). You can negotiate a higher mileage limit and pay a higher monthly
payment. You will likely have to pay charges for exceeding those limits if you return the
vehicle. |
BUYING: You may drive as many miles as you want, but higher mileage will
lower the vehicle's trade-in or resale value. |
| Excess wear |
| LEASING: Most leases limit wear to the vehicle during the lease term. You
will likely have to pay extra charges for exceeding those limits if you return the
vehicle. |
BUYING: There are no limits or charges for excessive wear to the vehicle,
but excessive wear will lower the vehicle's trade-in or resale value. |
| End of term |
| LEASING: At the end of the lease (typically 2-4 years), you may have a
new payment either to finance the purchase of the existing vehicle or to lease another
vehicle. |
BUYING: At the end of the loan term (typically 4-6 years), you have no
further loan payments.
|
| Consider
beginning, middle, and end-of-lease costs |
At the beginning of the lease, you may have
to pay your first monthly payment; a refundable security deposit or your last monthly
payment; other fees for licenses, registration, and title; a capitalized cost reduction
(like a down payment); an acquisition fee (also called a processing or assignment fee);
freight or destination charges; and state or local taxes.
During the lease, you will have to pay your monthly
payment; any additional taxes not included in the payment such as sales, use, and personal
property taxes; insurance premiums; ongoing maintenance costs; and any fees for late
payment. You'll also have to pay for safety and emissions inspections and any traffic
tickets. If you end your lease early, you may have to pay substantial early termination
charges.
At the end of the lease, if you don't buy the vehicle, you
may have to pay a disposition fee and charges for excess miles and excess wear.
You can
compare different lease offers and negotiate some terms.
Consider . . . |
- the agreed-upon value of the vehicle--a lower value can reduce
your monthly payment
- up-front payments, including the capitalized cost reduction
- the length of the lease
- the monthly lease payment
- any end-of-lease fees and charges
- the mileage allowed and per-mile charges for excess miles
- the option to purchase either at lease end or earlier
- whether your lease includes “gap” coverage, which
protects you if the vehicle is stolen or totaled in an accident.
Ask for alternatives to advertised specials and other lease
offerings.
| Know your
rights and responsibilities |
When you lease a vehicle, you have the right to
- use it for an agreed-upon number of months and miles
- turn it in at lease end, pay any end-of-lease fees and charges,
and “walk away”
- buy the vehicle if you have a purchase option
- take advantage of any warranties, recalls, or other services that
apply to the vehicle.
You may be responsible for
- excess mileage charges when you return the vehicle. Your lease
agreement will tell you how many miles you can drive before you must pay for extra miles
and how much the per-mile charge will be.
- excess wear charges when you return the vehicle. The standards for
excess wear, such as for body damage or worn tires, are in your lease agreement.
- substantial payments if you end the lease early. The earlier you
end the lease, the greater these charges are likely to be.
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