Keys to Vehicle Leasing
A consumer guide provided by the Federal Reserve
The information in this section is provided by the Federal Reserve. This section gives an overview of the most common type of vehicle lease — a closed-end lease. With this type of lease, you may return the vehicle at lease end, pay any end-of-lease costs, and “walk away.” This section also provides you with a comparison of leasing and buying.The federal Consumer Leasing Act gives you the right to information that helps you understand and negotiate your lease. A number of leasing options are available. Look for the lease that best fits your needs, your budget, and your driving patterns.
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 and local taxes.
During the lease, you will have to pay your monthly payment; any additional taxes not included in the payment such as sales, se, 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.
Leasing is different from buying. Here’s how…
You do not own the vehicle. You get to use it buy must return it and the end of the lease unless you choose to buy it.
You own the vehicle and get to keep it at the end of the financing term
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.
Up-front costs include the cash price or a down payment, taxes, registration and other fees, and other charges.
Monthly lease payments are usually lower 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.
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.
You are responsible for any early termination charges if you end the lease early.
You are responsible for any pay-off amount if you end the loan early.
You may return the vehicle at lease end, pay any end-of-lease costs and “walk away.”
You may have to sell or trade the vehicle when you decide you want a different vehicle.
The lessor has the risk of the future market value of the vehicle.
You have the risk of the vehicle’s market value when you trade or sell it.
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 these limits if you return the vehicle.
You may drive as many miles as you want, but higher mileage will lower the vehicle’s trade-in or resale value.
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.
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.
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.
At the end of the loan term (typically 4-6 years) you have no further loan payments.