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Leasing became popular when businesses wanted to operate automobile fleets while avoiding the high cost of ownership and maintenance. When individual leasing developed, consumers were faced with a new market question: to lease or not to lease.
Automobile leasing is not a simple matter. Cars lose value or depreciate over time. When you lease a car for two years, you are paying for two years of depreciation in monthly payments plus interest. At the end of the lease, the automobile can be either sold to you or someone else for its value at that point. When you lease, you pay to drive someone else's vehicle. There is no ownership or equity, you simply pay for the use of the automobile. The manufacturer's warranty covers most repairs but all maintenance costs and insurance are your responsibility.
See Web Site: Is Leasing Right for You?
See Interactive Calculator: Should I lease or purchase?
Regulation M from the Federal Reserve Board, effective January 1, 1998, requires disclosure by leasing companies of specific information and provides consumers with a description in writing of the lease's financial details. A model disclosure form is available. The stated purpose of the new Regulation M is to allow consumers to compare one lease with another for the same vehicle and to compare leasing a vehicle with buying it on credit. However, the disclosure requirements do not apply to lease transactions over $25,000.
Know the important questions to ask before you lease a car. There are major differences between buying and leasing. However, the first steps in leasing are the same as those in buying a car.
Negotiate the Gross Capitalized Cost
Try to negotiate a gross capitalized cost somewhere between the MSRP and the dealer invoice price. The lower the cap cost, the better deal for the consumer. If the gross capitalized cost is too high, tell the salesperson to cut items that increase the total cost. If the salesperson claims that capitalized cost is a fixed figure and can't be lowered, find another salesperson. Use the required disclosure form as a worksheet. On the form, compare the agreed upon value of the vehicle with the gross capitalized cost to see what charges have been added.
The law of supply and demand affects leasing as well as buying. If car sales are breaking records and the model you want to lease is a hot seller, expect to pay more. If the opposite is true and car sales are sluggish, bargain for a capitalized cost that represents a discount from the MSRP.
Filled in Disclosure Form
Ask the salesperson to fill in the disclosure form-front and back and give you the figures. Be sure that you check the box near the middle of the front page in order to get a step-by-step calculation of the monthly payment. At this time, lessors are not required to provide data on the money factor used to calculate the equivalent of the annual percentage rate of interest (APR) charged on vehicle loans.
Review the Disclosure Form
Review the disclosure form and ask for explanations of any items you do not understand. Make sure that the trade-in allowance reduces the gross capitalized cost. In the past, a common leasing complaint was that consumers were not given credit for the trade-in. To prevent this, scrutinize the line on the disclosure form titled capitalized cost reduction. The total amount should include rebates, cash down payment, and trade-in allowance. If you have paid a deposit, make sure you get credit for it.
Take the Lease Home and Study it
Once the lease is written, instead of signing on the spot, ask for an exact photocopy to take home and study. Given the importance of the document, the obscurity of its terms, and its legally binding status, a quick decision is not smart. If possible, avoid giving a deposit at this stage since there is no deal until you sign the lease.
Compare the Figures
At home, compare the figures on the lease with those on your disclosure form. Look for unexplained changes. Use your calculator to check the math. Verify the accuracy of the most important figures: lease term, gross capitalized cost, capitalized cost reduction, residual value, and rent charge.
A short-term lease, up to 24 months, means larger payments and more money spent for depreciation. A longer lease, up to 48 months, should have smaller payments, but may be less flexible. Experts recommend a lease length that coincides with the length of the vehicle's warranty.
When you buy an automobile, the hard bargaining and stressful confrontations often come at the beginning of the deal. In contrast, leasing is quite simple at the onset but potentially complicated at the end. When you turn the car in, problems may develop. They can be avoided by reading the fine print, sentence by sentence, before you sign. Some of the important items to look for are:
REMEMBER —LEASING A CAR IS DIFFERENT FROM BUYING A CAR — WHEN YOU BUY, YOU'RE THE OWNER. YOU PAY FOR THE CAR, YOU KEEP THE CAR. WHEN YOU LEASE, YOU PAY TO DRIVE A CAR OWNED BY SOMEONE ELSE. AT THE END OF THE LEASE, YOU GIVE IT BACK OR IN SOME AGREEMENTS, YOU CAN BUY THE CAR.
|Federal Consumer Leasing Act Disclosures Date ______|
Amount Due at Lease Signing or Delivery
Your first monthly payment of $____ is due on ______, followed by ______ payments of $____due on the ______ of each month.
The total of your monthly payments is $____
Other Charges (not part of your monthly payment)
Disposition fee (If you do not purchase the vehicle) $____
Total of Payments
(The amount you will have paid by the end of the lease) $____
|Lessor(s) ________ Lessee(s) ________|
*Itemization of Amount Due at Lease Signing or Delivery
Amount Due at Lease Signing or Delivery How the Amount Due at Lease Signing or Delivery will be paid:
Capitalized cost reduction $____ Net trade-in allowance $____
First monthly payment ______ Rebates and non-cash credits ______
Refundable security deposit ______ Amount to be paid in cash ______
Title fees ______ ______ ______
Registration fees ______ ______ ______
Total $_____ Total $____
Your monthly payment is determined as shown below:
|Gross capitalized cost. The agreed upon value of the vehicle ($______ )
and any items you pay over the lease term (such as service contracts, insurance, and any outstanding prior creditor lease balance)
|If you want an itemization of this amount, please check this box.. [ ]|
|Capitalized cost reduction. The amount of any net trade-in allowance, rebate, non-cash credit, or cash you pay that reduces the gross capitalized.cost||-____|
|Adjusted capitalized cost. The amount used in calculating your base monthly payment||=____|
|Residual value. The value of the vehicle at the end of the lease used in calculating your base monthly payment||-____|
|Depreciation and any amortized amounts. The amount charged for the vehicle's decline in value through normal use and for other items paid over the lease term||=____|
|Rent charge. The amount charged in addition to the depreciation and any amortized amounts||+____|
|Total base monthly payments. The depreciation and any amortized amounts plus the rent charge||=____|
|Lease term. The number of months in your lease||/____|
|Base monthly payment||=____|
|Monthly sales/use tax||
|Total monthly payment||= $____|
|Early Termination. You may have to pay a substantial charge if you end this lease early.|
The charge may be up to several thousand dollars. The actual charge will depend on when the lease is terminated. The earlier you end the lease, the greater this charge is likely to be.
|Excessive Wear and Use. You may be charged for excessive wear based on our standards for normal use [and for mileage in excess of ____ miles per year at the rate of ____ per mile].
Purchase Option at End of Lease Term. [You have an option to purchase the vehicle at the end of the lease term for $____ and for a purchase option fee of $____.] [You do not have an option to purchase the vehicle at the end of the lease term.]
Other Important Terms. See your lease documents for additional information on early termination, purchase options and maintenance responsibilities, warranties, late and default charges, insurance, and any security interest, if applicable.
Model Closed-end or Net Vehicle Lease Disclosures. Page 2 of 2
[The following provisions are the non-segregated disclosures required under Regulation M.]
Description of Leased Property
|Year||Make||Model||Body Style||Vehicle ID #|
Official Fees and Taxes. The total amount you will pay for official and license fees, registration, title, and taxes over the term of your lease, whether included with your monthly payments or assessed otherwise: $____. The total amount you will pay for official and license fees, registration, title, and taxes over the term of your lease, whether included with your monthly payments or assessed otherwise: $____.
Insurance. The following types and amounts of insurance will be acquired in connection with this lease: The following types and amounts of insurance will be acquired in connection with this lease:______ We (lessor) will provide the insurance coverage quoted above for a total premium cost of $____.
______ You (lessee) agree to provide insurance coverage in the amount and types indicated above.
Standard Wear and Use. The following standards are applicable for determining unreasonable or excessive wear and use of the leased vehicle: The following standards are applicable for determining unreasonable or excessive wear and use of the leased vehicle: ______.
(You are responsible for the following maintenance and servicing of the leased vehicle: ______].
[We are responsible for the following maintenance and servicing of the leased vehicle: ______].
The leased vehicle is subject to the following express warranties: ______.
Early Termination and Default. (a) You may terminate this lease before the end of the lease term under the following conditions: (a) You may terminate this lease before the end of the lease term under the following conditions: ______.
The charge for such early termination is: ______.
(b) We may terminate this lease before the end of the lease term under the following conditions: ______.
Upon such termination we shall be entitled to the following charge(s) for: ______
(c) To the extend these charges take into account the value of the vehicle at termination, if you disagree with the value we assign to the vehicle, you may obtain at your own expense, from an independent third party agreeable to both of us, a professional appraisal of the ________ value of the leased vehicle which could be realized at sale. The appraised value shall then be used as the actual value.
Security interest. We reserve a security interest of the following type in the property listed below to secure performance of your obligation under this lease: We reserve a security interest of the following type in the property listed below to secure performance of your obligation under this lease: ______.
Late Payments. The charge for late payments is: ______.
Option to Purchase Leased Property Prior to the End of the Lease. [You have an option to purchase the leased vehicle prior to the end of the term. The price will be [$____ /[the method of determining the price]. [You do not have an option to purchase the leased vehicle.] [You have an option to purchase the leased vehicle prior to the end of the term. The price will be [$____/[the method of determining the price]. [You do not have an option to purchase the leased vehicle.]
View Consumer Lease Statutes.
See Web Sites:
See Federal Reserve Board's Web Site on Leasing
Interactive Auto Calculator: Should I lease or purchase?
Other Lease Web Sites:
Leasing has become the choice of millions of drivers. Is it for you?
Note: The links on this page that go to web sites outside of this agency's control are provided as a convenience only. The Department takes no responsibility for their content.