Automotive: 3 Things to Consider Before Leasing a Car

Inflation is at an all-time high, and buying new cars is getting more difficult with the increasing costs and interest rates. If you can’t afford to own a car right now, then leasing can be a good option for you.

Leasing a car allows you to drive the vehicle for a fixed number of months and miles by offering monthly payments. It also allows you to drive newer vehicles with updated features every few years without big monthly payments and fewer responsibilities. Usually, the monthly costs of leasing a car are lower than buying it with an auto loan.

However, leasing is not as easy as it seems, and there are several elements that you have to carefully look into to prevent any difficulties from arising in the future. Read ahead to find three things to consider before leasing a car.

1. Negotiating the Lease Agreement

Many parts of a lease contract are negotiable. You must understand them and try to negotiate lease terms with your dealer, as failing to do so might mean losing hundreds of dollars you would have otherwise saved.

Lease contracts contain many technical terms that might be difficult to understand, so you must research to fully understand them before negotiating. It’s also essential to visit several car dealers, look into the quotes they offer, and compare them. This will help you use these quotes as leverage when negotiating with the dealer you want to work with.

Some negotiable terms in the lease contract include the duration of the lease, mileage allowance, and the money factor. The Gross Capitalized Cost of the vehicle is also negotiable. It refers to the vehicle’s value at the beginning of the lease plus the fees. It can be negotiated to get better deals with lower monthly payments. 

Another negotiable element is the buyout price. It is the amount that will have to be paid to the dealer in case you want to buy the car at the end of the lease and can be negotiated to pay less than what you were offered at the start. It is based on the car’s residual value and can be calculated using a lease buyout calculator.

2. Gap Insurance

Leased vehicles start to depreciate as time passes, and most vehicles usually depreciate 15% to 30% in value within the year. In the unfortunate case of an accident in which the car is totaled, you might end up paying more to the car dealer than the car’s actual market value. So it’s important to consider buying Guaranteed Asset Protection, ‘gap’ insurance. The ‘gap’ refers to the difference between the car’s market value and what you owe. Your insurance company would calculate it and pay it to the vehicle’s dealership.

For example, if your lease agreement states that you can buy the car for $20,000 at the end of the lease agreement, but the market value at the time of the accident is only $15,000. The insurance company would cover the gap of $5000 so that you wouldn’t have to pay it out of your pocket.

Consider buying gap insurance if you’ve paid a downpayment of less than 20% and leased a vehicle that depreciates faster than average. Many lease contracts offer gap insurance. However, traditional insurance companies usually offer cheaper policies, so look into them.

3. Money Factor

The money factor of a lease’s monthly payments is the portion used for financing the vehicle. It is similar to interest paid on a mortgage. The money factor is not usually stated in lease agreements, so confirming it before leasing your car is essential. It’s usually expressed as a small decimal, for example, 0.002, which has to be multiplied by 2400 to get its equivalent interest rate. 4.8% in this case. 

It’s vital to ensure that your interest rate is not higher than the interest on a new-car loan. Sometimes the money factor might be mentioned ambiguously, making it seem like a cheap interest rate, so make sure you are not confused. The multiplier 2400 is always part of the calculation and irrelevant to when you lease the car. 


Leasing a car can be exciting if you can’t afford to buy one right now. You get to drive a new vehicle with updated features every few years with lower monthly costs than buying it with a loan. Before signing a lease contract, though, consider negotiable elements like the buyout price, leasing period, and mileage allowance. Also, ensure that there are no hidden costs and that the money factor has an interest rate equivalent that’s not higher than one on a loan for a new car. 

Carefully considering these elements can help you save hundreds of dollars you would have otherwise lost.

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