As car prices and interest rates rise, the auto lease has become an attractive option for car shoppers. Leases now account for nearly one-third of all new-car retail transactions—up from less than 20 percent in 2009.
It comes down to cost. Monthly payments on a lease average $120 less than those of traditional auto loans. For large pickup trucks, lease payments average over $200 less than traditional loan payments.
This is alluring because we live in an expensive world. Not only do interest rates now average 6.5 percent on a 60-month loan, but new cars are also really, really pricey. The average price of a new car now stands at $35,444—an all-time high.
But leasers beware: Lease agreements come with all sorts of unexpected costs.
First, you should know what kind of car owner you are. If you’re not the most careful driver, a lease may not be right for you. Dents, scratches, and other damages often carry added fees. If you’ve damaged your car in the past, ask your dealer about hidden damage fees before pulling the trigger.
The same goes for high-volume drivers—if you put countless miles on your car, a lease isn’t the best fit. A typical lease provides a 36,000 mileage warranty, and you can generally expect to pay as much as 25 cents at the end of the lease term for each mile you go over that limit. In other words, an extra 1,000 miles can cost $250.
You should also know that financing rates depend on your credit score. The better your credit score, the better financing rate you can find.
Lastly, you can always negotiate for a better rate. It won’t necessarily work, but negotiation can save you thousands of dollars a year. It’s worth a try!