For many people there is this appeal to leasing a vehicle rather than simply owning it. When leasing a car, the ability to finance a much more expensive vehicle with lower monthly payments brings with it a feeling of power and control. One only need stand back however and take a closer look at the terms of the lease to realize quickly that this type financing isn't all it's cracked up to be. Take a closer look at the fine print at you will discover these four hidden costs in leasing a car that you will not have to deal with when purchasing the car outright.
1. The Limitation on Mileage
One of the most common hidden costs in leasing a car is the mileage overage fees. When you decide to lease the car, typical limitations on mileage range between 10,000 and 12,000 miles for the year. If the car you are leasing is brand new, many dealers will place the limitation on the lower end of the mileage numbers. Once you pass that mileage number for the year, the typical hidden fee is .18 per mile over the limit. While we are only talking pennies here, if you only drove 15,000 miles each year during a three-year lease, expect to be getting an invoice from the leasing company at the end of the term for $2,700 in overage charges.
2. Zero Equity at End of Lease
Financial experts have been pounding the drum for years about how a new car instantly loses value the minute it is driven off the lot. What they always seem to forget to mention is that you are going to have some equity in that car regardless when you sell. If you bought the car with a traditional loan, there will be residual value at the end of the loan. It may only be a fraction of what you paid, but nonetheless it is still a monetary value that is yours. Consider leasing that same new car, and you must return it to the lender at a predetermined time with nothing in return but the memories you have of driving your vehicle. Add on the fact if the car is ever wrecked or stolen, you are on the hook for any money the insurance company doesn't cover on the cost of the car.
3. The Legalities of the Lease
The car dealership is not going to make things easy for you when you are signing papers because if you realized exactly what you were spending to drive the car for the term of the lease, you actually might have second thoughts. When you lease a car, you will be bound by residual value, money factor, capitalized cost, and capitalized cost reduction factors. The money factor is the interest rate you are given on the lease, and if you are not negotiating the lowest possible money factor, the hidden costs in leasing a car concerning the interest rate alone will be huge.
4. The Damage Fees
When you lease a vehicle, you are required by the terms of the agreement to return it in very good shape. The terms do vary, but the hidden costs for bringing the car back damaged could be substantial. What you consider tiny dings from shopping carts, the dealership might find unacceptable. The dealership can and will charge you thousands of dollars when the lease has expired if they feel the small damages you thought were nothing add up. Consider coffee stains in the carpet, scratches in the bumper, or tears in the upholstery as just normal wear-and-tear, but look closely at the lease agreement and realize the discretion is up to the dealership. They will charge you at their discretion for every little thing they can find upon inspection of the entire vehicle.
To avoid these hidden costs in leasing a new car, simply make certain that you read the contract and fine print and get a written explanation for anything you have questions or concerns about. According to Automotive Lease Guide (ALG), by the end of this year, leasing is expected to be approximately 17% of mainstream car purchasing. An astounding 43% of luxury vehicles are currently leased, and while this may seem like a viable option of the surface, taking the time to familiarize yourself with the fees can save you thousands in unexpected costs.