How to lease a car in 7 simple steps

We live in times that are fickle and fast moving, and what’s hot, viral, and trending this morning is often cold as ice by sunset. As such, it’s not surprising more and more people are choosing to lease cars rather than buy.

According to data released by Experian Automotive, a source for car-industry data, a third of all new-vehicle transactions in the final quarter of 2015 were leases. This represents an increase of more than 10 percentage points over the level seen in the fourth quarter of 2011.

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For many, purchasing a car represents a long-term commitment, and given that automotive technology and innovation hurtles forward at the speed of light each year, this kind of extended union can feel restrictive. Car leases are available for as few as 24 months, and this gives a lessee the freedom to quickly trade up to the most current model.

Not all lease opportunities are equally rewarding, and you’ll have to do some homework to land an optimal lease. Here are seven steps designed to help you strike a car-lease deal you’ll be happy with.

1. Make an informed choice as to whether leasing is right for you. Leasing offers benefits, but it also comes with drawbacks. If you want to avoid being surprised or disappointed, it’s important to scope out the terrain before charging ahead.

The key advantage to leasing is it enables you to pay less money each month than you would if you were to purchase a car. This may allow you to step up to a more premium vehicle than you could otherwise afford. You’ll also be able to drive off in a new car with less money down.

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Depending on the length of the lease, repairs may be covered under warranty, and this means you won’t have to pay to get your car serviced if a component fails.

A leasing contract is finite. Once it ends, you’ll be in the market for a new car again, and you won’t have to worry about selling or trading in the old one, since disposal will be as simple as turning the car over to the leasing company. This makes leasing a good choice for those who plan to frequently upgrade to the newest model.

The key disadvantage to leasing is that it doesn’t confer ownership, and a lack of ownership places restrictions on what you can do with the vehicle. For example, if you have dreams of customizing your car with aftermarket options, leasing isn’t for you, since the terms of a typical car lease don’t allow those changes.

Leasing contracts also have mileage limits, and most contracts allow 12,000 miles per year. If you exceed this, you’ll have to pay extra, and this usually runs about 10 to 15 cents per mile. If you put lots of miles on your car each year via road trips or a long work commute, leasing may not be ideal.

Leasing also requires that the vehicle be well maintained. If there is damage or wear and tear, you’ll have to pay a penalty.

With leasing, you never own your car, which means you never build equity in the vehicle you’re driving, and you never stop making payments. Though leasing will cost you less each month than making loan payments for a purchase, keep in mind the cumulative cost of leasing for several years could easily exceed the cost of buying a new vehicle.

Leases also commonly require extra charges called acquisition and disposition fees. You should pay one or the other, but not both.

If you’ve analyzed this information and decided leasing makes sense for you, it’s time to move on to the next step.

2. Set the terms of your lease. When setting up a lease, you’ll have to decide how much of a down payment you want to make, if any. You’ll need to determine the span of the lease contract. You’ll also need to decide how much you want to pay each month.

Down payments aren’t required for car leases, and we’d recommend you not make one. If one is made, keep it under $1,000. The reason behind this recommendation is this: If your vehicle is stolen or totaled, you may lose your down payment. In the event of theft or a total loss, insurance companies reimburse you for the actual market value of the car, and that takes a hit the minute you drive off the lot. According to statistics published by Edmunds, a company providing automotive data, new cars depreciate by an average of 19 percent in the first year of ownership.

Guaranteed auto protection (GAP) insurance is required by most lease contracts, and it can help cover the difference between the car’s market value and the amount owed to the leasing company if the car is written off or stolen. However, keep in mind that even with GAP insurance, there may be limits to the amount of protection provided. For example, Progressive—which calls this kind of protection loan/lease payoff coverage—limits its coverage in this area to 25 percent of the actual cash value of the vehicle at the time of the loss, and this may not be enough to fully reimburse you for a large down payment. Your best bet is to minimize your risk by minimizing your down payment.

It’s also important to remember a key advantage of leasing is it frees up your cash flow by providing you with expenses that are more manageable than those associated with buying a car. If you shell out lots of money for a big down payment, this will negate this advantage.

As far as the span of the lease contract is concerned, we’d recommend having your lease agreement not extend beyond the length of the basic warranty offered by the manufacturer. This helps you avoid having to pay for repairs on a car you don’t own. Most manufacturers offer basic warranties with three-year protection, though some offer warranty protection for four or five years.

Take a look at your overall budget to determine how much you’ll be able to afford for a monthly lease payment. Keep in mind that advertised lease offers typically require a down payment and do not include sales taxes and fees, so the monthly lease payment could be more costly than you’d anticipated.

Remember to consider all your automotive expenses when planning your budget, including insurance. If you’ve previously paid insurance on a car you’ve owned, keep in mind you’ll likely have a higher payment on a lease, since lease companies tend to require more coverage. Contact your insurance provider for an estimate.

3. Pick a car. Many of your considerations here will be practical. Choose a vehicle with useful seating and cargo capacity. Singles and couples without kids will do fine with coupes, but if you’ve got kids or plan to have one in the near future, your life will be easier if you select a vehicle with more doors. Fuel economy should be kept in mind, as you can save a great deal in fuel expenses each year by choosing a vehicle with great gas mileage.

You make a personal statement every time you drive up in your car, so it’s important to choose a car with styling that reflects your aesthetic, and an image you want to portray. It’s certainly possible to drive a vehicle that’s both attractive and practical, so make a selection offering the functionality you need and the style you love.

Since leasing is less expensive than purchasing, you’ll be able to afford a bit more car if you choose to lease. If you’ve been hankering to step up to a luxury model but haven’t been able to swing it financially, you may find these models more affordable through a lease. Also, the fact that leasing can cost less than purchasing means you may by able to indulge in a model with all the bells and whistles, from the latest infotainment features to cutting-edge active safety technologies.

A test drive can reveal things that may not be revealed in the vehicle’s seductive marketing materials. Spend some time behind the wheel of the model you’re considering to make sure it’s agreeable on all fronts.

4. Look for lease deals and special offers. Many auto manufacturers regularly offer leasing incentives designed to make leases more attractive to shoppers. US News & World Report offers a monthly look at the best lease deals that can help you weigh your options, and you can research current leasing incentives on Edmunds.

You can also get great leasing deals via special offers provided by third-party automotive websites. Both Edmunds and TrueCar present offers facilitating low-cost leasing with no-haggle pricing.

5. Drum up quotes via each dealership’s internet department. Now that you’ve identified great lease deals and offers, you’re ready to hit the trenches. Instead of going to the dealership in person, contact each dealership’s internet department via phone or email for a price quote. Once you’ve gotten a price quote, follow up by requesting a lease quote using the down payment, lease term, and monthly payment that work best for you. Make sure each lease quote includes sales tax.

After you’ve gotten a couple of lease quotes from dealers, you’ll be able to compare your alternatives.

6. Negotiate. This is the point at which you can bargain if you so choose. You can either skip negotiating and go with the lowest lease quote, or pit the dealers against each other to try and get an even better deal.

If you decide to bargain, make sure the salesperson presents you with all the numbers relevant to the deal. Request a detailed breakdown of all calculations.

Many dealerships will deliver the car to your home or business if you make this a condition of your lease. This saves you from having to make a trip to the dealership to sign the paperwork, and it also means you won’t run the risk of having to sit through a last-minute sales pitch regarding dealer add-ons.

7. Sign the lease documents. You’ve already agreed on the numbers, and now it’s time to make it official by signing the paperwork. Your job here is to review the paperwork to make sure the numbers match the figures you’ve agreed upon. If everything matches up, sign on the dotted line. If not, have the dealership prepare paperwork based upon the original deal or prepare to walk away and accept your next-best lease quote.

Drive away happy

Leasing can simplify your car ownership experience by helping you avoid repair expenses. It also helps you sidestep disposal worries once you’ve decided to move on to a new model.

Provided you fit the profile for the kind of driver well served by a lease, going this route can be both satisfying and rewarding.