Image of a person driving a leased car.

Understanding Your Car Lease Agreement

Updated January 1, 1 . AmFam Team

Get behind the wheel of the car of your dreams with this in-depth guide on car leasing and everything else you need to know to get a great deal. Take a look at these insider tips, you’ll be a more savvy shopper and be able to spot car lease deals in no time!

There’s nothing like getting behind the wheel of a new car and driving it off the lot. The peace of mind that comes with new breaks, wheels and transmission is appealing because you know you’ve purchased something reliable. And, let’s be honest, there’s nothing like that new car smell.

Think a new car isn’t in your future? Think again! Leasing a car is one way you can get behind the wheel of the latest and greatest version of your dream car. But before you set out for a test drive, keep the following tips in mind for leasing a car.

Getting Your Car Lease Agreement Right

Leasing a car is great if you want to zip around in something with all the latest bells and whistles — while keeping your payments low. With a relatively modest down payment, you can enjoy all the cool new features for a few years. And if you go into the dealer with your homework done, you just might score a great deal, too.

Here’s what you need to know:

Get the app. By downloading a car leasing calculator app, you can manage all of the math yourself with visual charts that’ll help you easily digest the results. There are many moving parts to an auto lease, many of which deal with price depreciation and financing rates. But the good news is that you can let the app do the heavy lifting to verify you’re making a good move.

Leasing is really just clever financing. Like buying a car or a house, leasing a car is really a deal you’re making with a finance company, with the dealer acting as the seller. The financing group purchases the car from the dealer for the price you name, so get those negotiating skills sharp!

You can negotiate the price of a leased car. Speaking of negotiating — here’s where you need to work carefully and strategically. After you’ve plugged in all the numbers into a leasing app, you’ll have a good idea if the deal is worth the money. Be sure that you’ve negotiated down the manufacturer’s suggested retail price (MSRP), as it’s often inflated by thousands. Don’t be afraid to whittle down your monthly payments by chipping away at fees or requesting cash back.

You can lease a car with no money down. Although it’ll likely make your monthly payments higher, no-money-down leases are available. But be aware that all of the regular fees will still be charged.

Your down payment will impact your monthly payments. If you have the means to, a larger down payment can reduce your payment amount, and your financing fees will be less as well.

“Money due at signing” is an important figure. Here’s why. There’s a wide array of fees and costs folded into the price of leasing a car. Much of your “out of pocket” expenses are fees due at signing. Be sure to ask if fees can be waived or carried by the dealer, and point to other leasing deals at competing dealerships — you might save a few bucks!

Some groups allow you to lease new and used vehicles. Although it’s not that common, leasing a used car can be arranged, though it’s more typical with luxury cars that retain their value over time. Be sure that the lease is for a brand-certified vehicle and carefully check the car’s history for regular maintenance and accident information. Keep in mind that insuring a luxury vehicle will usually require a higher monthly premium. One big benefit to leasing a used vehicle is you’re saving the “off the lot depreciation” cost, which sometimes amounts to 10% of the MSRP.

A good credit score will result in a lower interest rate. Like any other financing-related purchase, your good credit will qualify you for a lower rate, so remember to use it as a bargaining chip while negotiating your interest rate.

You should negotiate the trade-in value now. Leasing is a complicated mix of renting and buying. You negotiate the overall purchase cost of the car when negotiating the lease, so if you choose to buy the car at the end of your lease, you’ll finance the remainder of the amount due then. For more in-depth advice on buying, take a look at our tips on how to negotiate for the best price at the dealership.

You’ll pay less sales tax. You’re only paying taxes on the total amount of the lease, not the total cost of the vehicle. But, keep in mind, you’ll also be charged tax on the down payment, as well as other typical fees, like documentation, tag, title, registration, destination and licensing fees. A security deposit may be charged, and some dealers will apply a disposition fee upon signing, which covers the cost of getting the car detailed and transported to auction once the lease is up.

You’re able to eventually buy the car. After the lease is over, you’ll have the option to purchase it. Consider this like a refinancing strategy. Purchasing the car can be a goal when you decide to lease, especially if you want to keep your payments down and pay down the cost of the car over the term of the lease. Because you’ve negotiated the price of the car at the beginning of the lease, you’ve entered into a potentially haggle-free purchase when it comes time to purchase.

You can trade your current car in when leasing, too. Most trade-ins are made when purchasing a new car, but you can take the equity in your car and use it to pay down the cost of the car you want to lease. Here’s a great reference for what you’ll need when you go to the dealer to get a car.

Return the car to any like-branded dealership. Review the terms of the contract to learn about where the car can be returned. Usually when a lease ends, you can return the car to a local dealership — either across town or across the country.

You can negotiate to get your first month’s payment waived. Typically, you’re required to make the first month’s payment at signing, but this is another time you can bargain and potentially save a few bucks.

You’ll need proof of insurance for the term of the lease. Many dealers require you to have specific coverage, like gap coverage and comprehensive coverage, for the term of the lease that will more completely cover the cost of the vehicle if it’s in an accident.

You’re responsible for maintenance and repairs. Oftentimes, you can get the dealer to pay for oil changes and some maintenance — maybe even free car washes — so don’t forget to negotiate for some or all of these options.

Your estimated annual mileage can reduce your payment. Most leases are advertised with the assumption that you’ll be driving about 12,000 miles annually. If you know that you’ll be only driving 8,000 miles per year, you stand to save on your monthly payment. On the other hand, if you know that your commute to work is going to put you over that 12,000 mile limit, you will have to fold a little extra cash into each payment to extend the annual mileage limit.

The purchasing of a vehicle can be exciting, but also a lot to manage — and leasing is no different. Once you’re familiar with the ins and outs of leasing, you’ll be able to negotiate like a pro. Remember to contact your American Family Insurance agent (Opens in a new tab) after your purchase to update your policy. You’ll feel great knowing you’re covered wherever the road may take you.

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