The Life of Your Lease

Before Your Lease
When you begin your lease, you can pay a "cap cost reduction." This is similar to a down payment. By paying this amount up front, you reduce the capitalized cost of the lease vehicle. Because the amount of depreciation is the difference between the capitalized cost and the estimated residual value, a cap cost reduction reduces the depreciation amount that is included in your payments. By paying a cap cost reduction, you can reduce your monthly payments.

In addition to paying a cap cost reduction (if you choose to), at the beginning of your lease you'll also have to pay your first payment; license, title and registration fees; state and local taxes; and sometimes, your last payment; acquisition fee; or dealer destination charges.

Choosing a Lease Term
Most leases are for terms of 24 to 48 months. A lease term over 48 months is not usually a smart choice, because cars quickly lose value. The longer the lease term, the more slowly the lease depreciation amortizes, which could affect the amount you must pay if you end the lease before the scheduled term. See "The End of Your Lease," below. If you plan to keep the car for a long time, consider financing instead.

During Your Lease
First, you will need to keep the vehicle insured during the term of the lease. This includes comprehensive and collision coverage.

Second, your lease will state the number of miles that you can drive during the term of the lease, or during each year of the lease without additional charges. For example, your lease may restrict your mileage to 36,000 miles after 3 years, or 12,000 miles per year. (If you believe that you will be driving more miles than the maximum amount permitted, you may want to buy the car, instead of leasing it.) Sometimes you may pay more in the beginning of the lease to increase the maximum mileage amount. If you go over the maximum mileage amount, then you will have to pay a per mile fee for every mile over the maximum amount at the end of the lease. During the lease, you'll want to keep an eye on the mileage you drive, so you can be aware of the possible excess mileage charges at the end of the lease.

Third, you most likely will be expected to take care of routine maintenance. Sometimes, the scheduled maintenance is included in your lease price.

Because you will be returning the car to the dealer or the person holding the lease at the end of your lease term, you need to make sure the car is kept in good condition. As with any car, normal driving will affect the car's condition. You will not be charged for normal wear and tear; however, when you turn in the car at the end of your lease, you will be charged for excessive wear and tear. Damages to the body such as scratches or dents, windshield chips, broken accessories, or other similar things, are excessive wear and tear for which you may be charged. Mechanical problems are also excessive wear and tear. When you turn in the car at the end of the lease, you should thoroughly clean the car so it is returned in as good a condition as possible and keep all of your maintenance and repair records. Be sure to take pictures of the inside and outside of the car before you turn it in. These pictures and records may help you if you dispute excessive wear and tear charges.

The End of Your Lease
If you have to end your lease early, you will pay an early termination fee. This can be a substantial amount.

At the end of the lease term, if you have gone over the maximum mileage allowed, you will pay excess mileage charges. You will also have to pay excessive wear and tear charges if the car has had more than the expected normal wear and tear.

At the end of your lease, you have a few options. You can simply turn in the car and walk away after payment of any excess mileage or excess wear and tear charges. Some leases require a disposition fee. Alternatively, you may decide to buy the car and may pay cash or obtain a loan to do so. Usually, you will have a purchase option that will be discussed with you when you start the lease. Sometimes you may re-lease the car again. If you aren't sure what you want to do, sometimes you can extend the lease on a month-by-month basis (up to 6 months) until you determine what you will do.