Car Leasing Process Explained Step-By-Step (For Beginners)

Leasing a car entails agreeing to a long-term rental contract for a vehicle. Unlike a regular car purchase, you do not own a leased car.

Instead, a leasing company buys it on your behalf and you pay a monthly fee for the length of the contract.

If you’ve never leased a car before, you’d want to learn more about leasing options.

Here’s a step by step to guide you on how to lease a car.

1. Do Your Homework

Research is the first step to leasing. You’ll need to get yourself acquainted with the various car leasing terminologies, including:

Lessee: The term lessee refers to the person leasing a car, in this case, you.

Co-signer: A co-signer is a person who acts as a second guarantor to your contract.

Lessor: A lessor is the leasing company that buys the car on your behalf from the manufacturer or dealer.

Rent Charge: A rent charge is the monthly amount you pay to the lessor for the duration of your lease.

MSRP: The manufacturer’s suggested retail price is abbreviated MSRP, while the capitalized cost is the sale price negotiated for the car.

Purchase Option: Some contracts include a purchase-option opportunity. Here, the residual value is the amount you pay to gain possession at the end of lease. It is determined by contract duration of lease and mileage allowance.

Money Factor: The money factor is the financing charge you will pay on a lease.

Disposition Fee: This lessor charges the lessee this fee at the end of their lease to prepare the returned vehicle for the next person that wants to buy the car.

2. Know the Benefits and Drawbacks

The best benefit of leasing is you can drive a car that you can’t afford at full retail price.

Leasing is a great option if you wish to change your car frequently, say, every 3 to 5 years. Maintenance costs on leased cars are lower, as leases typically end before cars require major service or new tires.

Leased cars come with the original factory warranty, so owners don’t have to worry about repair costs as long as the warranty covers the issues.

There are few drawbacks to leasing cars regarding mileage limits, termination and return charges.

They’ll charge you about 20 cents per mile if you drive above the mileage allocated in the contract. The leasing company will also charge an early termination fee if you end your lease before the contract period expires.

You may also have to pay a return charge if there’s damage on the interior or exterior of the car. They’ll also inspect the overall driving performance of the car on return.

3. Know Your Credit

Now that you’ve decided leasing is ideal for you, check your credit score. Leasing companies may use your credit score as a measure of consumer’s credit risk.

Before approving your lease, many leasing companies look for a FICO score of around 700 or more. FICO regards this as a healthy credit.

People with great credit scores are more likely to lease a car. That’s because leasing can be tough if you have an awful credit. You may be unable to lease a car at all.

It is therefore important to check your credit score beforehand. If you plan on leasing a car with poor credit, do some research on the lease options that are available. Remember, it could be more expensive.

4. Have a Financial Plan

Set a budget for the car make and model you want the leasing company to lease. Also, search for car lease deals online that fall within your price threshold.

Look at the cars people constantly get leased to them. If nobody leases the car you want, it’s probable the car isn’t leased so often.

While leasing, the company will ask you for an initial down payment. Typically, it’s lower than 20% of the car’s retail value.

Figure out the amount of money you have available to make a down payment. You’d want to consider getting lease deals with a near- zero down payment and the lowest monthly payment as possible.

Discuss with an insurance agent to find out models that will keep your insurance premium low.

Choose a car with good gas mileage, outstanding safety features and low maintenance costs to help reduce the overall cost.

Evaluate how much you can afford to spend on a monthly lease payment. It’s not a good idea to run into debt to finance the car. So stick to your budget and work with your available funds.

Related: How Much Do Used Ford F150 Cost? (With 10 Examples)

5. Compare Lease Deals

Check online car lease forums to see what lease deals others are getting for their cars.

Although lease deals are regional, hence, may differ, it is good practice to compare them. This always helps to know what you’re looking for and how to get it.

It’s good to see what deals others have already gotten, if you want to get a great deal for the same or similar vehicles.

Find lease deals with similar lease periods and mileages to your intended leasing period and mileage. Look at the package of the car, as there may be different models within a particular car.

The base trim of a car usually has the best package. It’s up to you to decide what matters most between the affordability and the features of the car.

You should also pay attention to details like which dealer offers the best percentage discounts on the capitalized cost to the MSRP.

Consider the terms, monthly payments, and the money down of each option. Look for the ones with zero money down and drive off fees. That way, if you experience a car accident or theft, the money that you put down is not completely lost.

6. Find a lease dealer

Check out what dealers are offering special lease rates on a car you want.

Do an online research on new car inventory of your make and model at two or three dealerships in your area. Visit the dealership in your area to see what options fall within your price range.

Also, do your research to know what a fair price for the car is. If not, you won’t have the advantage in a negotiation.

Remember to shop for a lease car as if it were a purchase, and don’t mention you plan on leasing it yet.

Take the car for a test drive. Confirm its ride comfort, acceleration, braking, quietness, visibility, and handling. Ensure they satisfy your taste.

Request quotes for the car you’re interested in. Also, ask the dealer for the monthly payment after tax. Additional inquiry should include the MSRP. Also inquire about the capitalized cost, money factor, residual value, deposition and acquisition fees.

Related: Why Is The Toyota Tundra So Expensive? (Explained)

7. Negotiate Your Lease

If you’re delighted with the quote, use it to bargain with the salesperson where you took your test drive.

Your research will be your leverage in a negotiation. The final bargained price will determine the leasing option you get for your car.

Negotiate on the purchase price first, as it’ll help determine your monthly lease payment. Walk away if a four-square worksheet is brought into the negotiations, and resume negotiating once it’s put away.

Also, if you sense you’re being taken advantage of, walk away. It shows that you won’t tolerate any tricks or nonsense and they’ll be forced to bargain with you the honest way.

You should negotiate the leasing terms once you’ve agreed on a final purchase price and it’s being written. Your monthly payment will be lower if you make a large initial down payment. You may still get a relatively low monthly payment deal with zero money down.

Factor in rebates that will reduce your total capitalized cost. Be wary of dealers who mislead you that certain rebates don’t apply to leasing agreements.

Review your agreements for any important details you may have missed. Ask for clarification if you don’t understand something.

8. Finalize Your lease

All lease agreements will be subject to the financing provider’s approval based on a credit check. This is to ensure that you can afford to pay and keep up with the monthly payments.

You can then allow the salesperson to do your credit inquiry after coming to an arrangement on all the lease terms. Provide all the required documents.

The credit check might take a day or two, and you’ll be contacted about the outcome of the application.

If you’re approved, you’ll receive a contract that outlines your usage of the car and your responsibilities. It’ll also formalize the agreement between you and the leasing firm.

This is your lease contract. Make sure you commit to one that works better for your budget and has the maintenance packages you want.

Get more miles if you feel you’re going to be driving more than the allocated mileage.

Remember, you’re signing a legal document and will be held liable for its contents. Examine it carefully. If everything is in order, sign the lease document.

If the delivery time is inconvenient for you, pick up your car yourself.

Related: Can You Lease A Used Porsche? 4 Price Examples

9. Maintain Your Car

You’re expected to make all of your payments on time and drive within the mileage of your contract.

It is your responsibility as the lessee to maintain your lease car during your lease period.

Lease contracts may include a maintenance package which covers the costs of repairs and servicing of your car. If it’s not in your contract, you may have to pay extra to get it included.

You can get extra covering protection for the seats and floor to help keep your car interior in good condition.

10. What Happens At End of Lease

The end of lease is a great time to evaluate your budget, and take time to look at what deals are available on the market. You have three major options to consider at the end of lease your period.

The first option is to pay the purchase-option price if you wish to buy and keep the car.

The second option is to return the car to the dealership and hand over the keys on the day the contract expires.

You won’t be charged a return fee as long as there’s no physical damage beyond wear and tear on inspection.

The third option is to trade your car in for a new one. If you opt for this, start the procedure three months prior, to ensure you have the new car in time.


Leasing a car: How to do it and mistakes to avoid |

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