Car Leasing: Understanding Your Maintenance and Repair Responsibilities and More

Many new car drivers lease rather than purchase their vehicles. Although leasing can be a good deal for some people, for many it's not.

Before the dealership persuades you that leasing is a good idea, you should have a good understanding of how car leases work.

How Do Car Leases Work?

When you lease a vehicle, you don't own it. You get to use it during the lease term, for a monthly fee, but must return it at the end of the lease.

In many leases, you have the option to buy the vehicle at the end of the lease.

Advantages of Leasing a Vehicle

There are two main reasons people lease, rather than buy, a vehicle:

• People who like to drive a new car every few years will usually pay less by leasing rather than buying. And they also don't have to deal with getting rid of their old car. They just turn it in at the end of the lease period.
• Lease payments are usually lower each month than loan payments for any given car. As a result, many people lease so they can drive a more expensive car than they could afford to buy.

Disadvantages of Leasing a Vehicle

Although you might be eager to drive an expensive new set of wheels, consider the following disadvantages to leasing a car before you make your final decision:

• If you continually lease your cars, you will have never-ending car payments. If you look forward to paying off your car and owning it free and clear, don't lease.
• If you decide to buy the car at the end of the lease, you'll pay several thousands of dollars more than if you had bought it initially. For example, if you buy a car, paying $1,000 a month for four years, you'll pay a total of $48,000. You might be able to lease it for only $800 a month (total payments of $38,400), but you'll probably have to pay another $16,000 to keep it. And if you finance that $16,000, you'll pay even more.
• Most leases charge around 15 to 25 cents per mile if you exceed the annual mileage limit, usually between 10,000 and 15,000 miles. If you drive extensively, leasing probably isn't for you.
• It's expensive to break a lease early. If you no longer want or can't afford to keep your car (for example, because you lost your job or your financial situation changed), you will have to pay a hefty early termination fee.
• If the car you lease turns out to be a lemon, in most states the leasing company has to do the complaining—remember, you don't own the car—to get redress.
• Leasing companies often require you to purchase very high levels of insurance, which can be expensive.

Routine Maintenance During Your Lease

Your lease agreement will specify who must pay for maintenance and repairs during the lease term.

What's Covered Under the Manufacturer's Warranty?

In addition, the agreement should come with a manufacturer's warranty. Ideally, it will cover the entire length of the lease and the number of miles you are likely to drive.

Generally, a warranty covers repairs or defects for a specified number of years or a limited number of miles. Specific parts might be excluded or some circumstances might void the warranty.

Who Pays for Repairs During a Car Lease?

Again, the lease will specify who must pay for repairs. Most lease agreements require you to pay for excess wear and tear. So, when you return the vehicle at the end of the lease, the dealer could charge you to fix anything deemed excessive by the lease agreement.

Understanding "Wear and Tear" in Car Leasing

Read the portion of the lease that describes "wear and tear" carefully. After all, every car is going to have a little wear and a few nicks after several years of use, and you want to be sure that the wear and tear standards are reasonable.

Gap Insurance

Look for a deal that includes "gap insurance" or waives "gap liability." If the vehicle is stolen or totaled, gap insurance will pay the difference between what you owe under the lease and what the dealer can recover for the vehicle—a difference that could amount to thousands of dollars. Some leases waive gap liability.

Canceling Your Lease Agreement Early

Usually, you can't cancel a lease agreement before the end of the term unless you're willing to pay a substantial penalty.

Canceling a lease. If you want to cancel your lease, look carefully at the provision describing what happens if you default or want to terminate the lease early. Ask the dealer or lessor to calculate how much it would cost you to terminate the lease early.

Breaking a car lease if you're in the military. Under certain circumstances, if you're a member of the military and you're ordered to move or you're deployed, the federal Servicemembers Civil Relief Act allows you to cancel a car lease, and you won't have to pay an early termination charge or penalty.

Getting More Information About Leasing a Car

To learn more about leasing a car, see Nolo's Encyclopedia of Everyday Law, by the Editors of Nolo.