Lease Driver Beware: Avoiding Large Penalties When Turning in the Vehicle
You may have breezed through all the small print on the lease contract and went straight for the dotted line because you could not wait to get your hands on the keys to the new lease vehicle that you could not really afford but were dying to drive. You could deal with the fact that you had to make a security deposit, title and license fees, first and last monthly lease payment, and a minimal down payment. Now, reality is setting in as your realize just how few miles you really can drive let alone all the other penalties that may hit you at the end of the lease. That low down payment and reasonable monthly payment does come with a few catches!
Do not feel trapped! Enjoy the vehicle and learn from your experience by following some helpful tips that will help you keep those costs to a minimum when your time is up with your beloved ride.
How Much????? The World of Lease Fees
There are a number of costs that come a calling at the end of a lease. Get out your calculator and take a deep breath:
- Excessive mileage is the biggest shock because it does not take much to go over the minimal miles you are given each year, especially if you are a commuter. Your charges go up pretty fast because it is a “per mile” charge over the allowed amount.
- Excessive wear and tear, including any damage to the exterior and interior will come out of your pocket.
- Disposition fees mean that you pay for the costs associated for the dealer to try and re-sell that vehicle after you return it to them.
- If you forget to make a payment, you could lose your security deposit or incur other costs if the vehicle is repossessed.
Be aware that if you sign an “open ended lease” versus a closed-end” lease, you will have to cough up more money for an “end-of-lease” payment if it turns out the residual value of the vehicle is higher than the actual value. Not sure what that means? The dealer will put an estimated residual value in your lease contract, which is an approximation of what the vehicle is believed to be worth at the end of the lease. If the vehicle remains in sterling condition, it could actually appraise for more and you could receive a refund, but sometimes people are surprised that they end up owing more on the vehicle than its worth.
By the time you add up all the costs that could be involved in the lease, it might have been the same to buy the vehicle on credit. However, when a person does not have much of a down payment, the lease seems like the way to go.
What Not to Do with a Lease
There are some decisions that will cost you even more, such as trying to end an auto lease early. Even if you do have a good reason, the dealership will not let you off easy. It is important to remember that a lease is a financial contract, so there are no free rides. If you want to do a buyout, this is not going to come cheap because the difference between what you paid on the contract and the market value of the vehicle now that you have had it for a while may cost you thousands not to mention early termination penalties. Ouch!
There are some ways to lessen the pain:
- If you are within the last year on your lease, some dealerships will allow you to turn in the vehicle if you get another one.
- It is possible to have a third-party take over the lease, which can be arranged and managed by a lease transfer company for a small fee. This might be the best solution if you are in a negative equity situation as previously mentioned. You may have no shortage of interested parties because those assuming the lease reap the benefits of lower monthly payments and shorter lease term. Beware that you might still be responsible as the original lease holder for any missed payments or excess wear and tear expenses.
- Do not get the extras on the lease, such as credit and life insurance.
There is a “do” however. You may want to consider “gap” insurance on a lease. If the vehicle is stolen or totaled, it will cover the difference between the value of the car and what you owe on the lease. Otherwise, you could get stuck with still paying lease payments.
Maximizing the Value of a Leased Vehicle
There are a number of steps you can do to ensure a cost-effective vehicle lease experience:
- Do not ignore the legal “mumbo jumbo.” Take the time to read your lease contract thoroughly so you understand what you have to fulfill and what the costs may be if you do not stick to the terms.
- Get any damages or what appears to be excessive wear and tear fixed up before returning the vehicle. It will most likely cost you less to get it done yourself than pay the dealership. Be sure to keep a copious record of all work that you have done on the car, including regular maintenance.
- Consider buying the vehicle at the end of the lease because you will not be liable for excess mileage or wear and tear charges. Since you are buying it, the dealer is not concerned about what condition it is in because you have to pay a certain amount under the purchase option.
- You can also avoid the disposition fee when you choose to buy it, but you will then have to pay a purchase option fee for paperwork preparation.
- If you do plan on buying the vehicle, you are usually required to give the dealership at least one month’s notice. Check your lease contract for the vehicle price at the end of the agreement. This will help you weigh the alternatives before the lease is up.
- Whether you own or lease a vehicle, it is good to keep a record of your maintenance and repairs because this adds values and ensures a higher premium for the vehicle when you turn it in. Web-based reminder systems are an excellent way to stay on top of your maintenance obligations and provide written proof that can be delivered in various reports to the dealership.
Do not be afraid to haggle with the dealer over the sales price of the lease vehicle if you are interested in buying it. The dealer would rather get rid of the vehicle sooner than have it sit on the lot for any period of time because this drives up their inventory costs.