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Leasing a new car instead of buying one makes a lot of sense — at least it often appears to make sense until you check under the hood.
Those who lease cars get to drive the newest models, don’t have to pay for maintenance and basically only pay for the depreciation of the car while they drive it. Little wonder leasing makes up about a third of annual new car transactions, reported automotive journalist Matt Jones of Edmunds.
And the American consumer’s tendency to focus on monthly payments instead of total cost promises to drive that number ever higher.
Leasing could be the right thing for you. But you need to pay attention to the fine print in auto leases, or you may be unpleasantly surprised. Here are some of the common, and costly, mistakes that consumers make again and again, according to new car dealers who spoke to MoneyTalksNews:
- Jumping on rock-bottom monthly lease payments. Don’t immediately go for the rock-bottom monthly lease deals. If you want to take advantage of such low payments, you’ll likely be asked to pay a hefty lump sum before you drive off the lot. That might not be wise. The reason: If the car is stolen or totaled you will lose that money. The insurance company will likely reimburse the dealer for the full value of the car. If you lease, try to pay as little upfront money as possible, even though that will boost your monthly payments. Tip: Always talk to the car dealer to determine if gap insurance makes sense to buy when you lease.
- Rolling negative equity into your payments. Yes, you can sometimes roll the money you owe from your past car loan into your car lease payments. That’s often a costly mistake for many reasons including higher monthly payments on your lease. The main concern, though, is that you allow the debt you carry to snowball. Remember, a new car is not a necessity, and going into serious debt for one is really not necessary. That’s why most lenders won’t allow those who lease to roll negative equity into the payments.
- Signing a long-term lease. Car leases are basically meant to be short-term rentals in which you move swiftly through the cycle. Done right, it often makes sense and reduces the overall cost of transportation because you don’t pay for maintenance and always drive fresh, reliable vehicles. Leasing for 60 months or more negates those positives. And if you turn the car in before the end of the lease period, you’ll often pay a sizable penalty.
- Accessorizing the car. Sure you can buy the high-end wheels, pinstripes and other packages to personalize the car you lease. Don’t do it! Why invest hundreds or thousands in a car you don’t own? A car is transportation, and leasing allows you to pay less for the vehicle. Don’t waste your money on accessories.
- Ignoring annual mileage. Many people leasing for the first-time don’t know their annual mileage; others ignore it and drive as much as they want. However, most leases cover a limited amount of mileage. If you go over, you will likely be required to pay per mile of overage — which can add up to thousands of dollars if you’re not careful. Or you may be faced with buying the car outright.
Leasing may well make financial sense for you, but analyze the costs and remember — leasing cars for 10 years or more will likely cost more than if you bought a car.
Not sure what’s right for you? Edmund’s offers an array of free online calculators to begin your analysis.
What’s your experience leasing a car? Share with us in comments below or on our Facebook page.