5 Things to Look Out for When Leasing a New Car

Updated July 2026

Leasing a car is similar to renting a house. You get to use it, but the car does not belong to you. This type of arrangement is good for people who do not want to be responsible for long-term maintenance and like to change cars every few years. When you are leasing a new car, you’ll sign a lease agreement that outlines your responsibilities. These include mileage limits, insurance standards, and wear-and-damage fees.

Before you commit, review every clause. The Federal Trade Commission warns that lease terms can include hidden costs. For example, some contracts charge for minor scratches or interior stains. The FICO Score affects your eligibility. Most leases require a credit score above 650 to qualify.

Which Fits Your Situation, Term or Whole Life?

When you lease a new car, the monthly payment is typically lower than a loan because you only pay for the vehicle’s depreciation during the lease term. But this does not mean it’s always the better choice.

For most people most of the time, they are better off purchasing a car. Jack Nerad, Editorial director, Kelley Blue Book and kbb.com.

That’s because ownership eventually gives you equity. Leasing means you never build value. After three years, you may have paid $18,000 in lease payments, but still owe nothing. But you have no asset. A financed car, even with a 9.8% annual percentage rate (APR) on a Chase auto loan, gives you title after the final payment.

However, this advice fails for drivers who consistently exceed 15,000 miles per year. A Federal Reserve survey found the average American drives 12,500 miles per year. If you’re above that, the cost of excess mileage fees can erase any savings from lower monthly payments.

How Do Mileage Limits Impact Lease Costs?

Most new car leases limit annual mileage to between 10,000 and 15,000 miles. Exceeding that means extra charges. The standard fee is $0.25 per mile over the limit, a cost that can total thousands if you drive a lot.

For example, a driver with a 12,000-mile limit who drives 18,000 miles over three years pays an extra $1,500 (6,000 miles × $0.25). That’s more than most lease down payments.

People with long commutes, say, over 50 miles one way, are especially vulnerable. The Federal Reserve’s 2013 survey found the average American drives 12,500 miles per year. If you’re above that, a lease may not suit you.

Some leases offer higher mileage allowances for a small fee. But the Consumer Financial Protection Bureau (CFPB) notes that these add-ons only shift risk, they don’t eliminate it.

Are Down Payments Required on Leases? Should You Pay One?

Many leases don’t require a down payment. But some dealers push a down payment to lower monthly costs. This can be misleading.

You’re not getting a discount. The down payment is non-refundable. If your car is totaled in an accident, you lose the down payment. The Insurance Information Institute reports that 36% of accidents occur within the first 24 months of ownership. That’s when you’re most likely to need the down payment back.

SoFi’s 2013 auto leasing data shows that leases with down payments had 15% higher total costs over three years, due to the lost principal and interest that could have been used to reduce the loan balance.

Instead of a down payment, consider negotiating a lower monthly rate. A 1.8% APR on a SoFi lease can cut payments without up-front costs.

For instance, a $35,000 car leased at 1.8% APR over 36 months with no down payment results in a monthly payment of $504. The same vehicle with a $1,000 down payment and 3.5% APR would cost $520. The lower rate saves $16 per month, or $576 over three years, more than enough to cover the down payment’s lost interest.

What About Trade-In Value and Lease Financing?

You can use a trade-in to lower your lease cost. But the value depends on the model, mileage, and condition. A 2011 Toyota Camry might trade for $4,200, while a 2010 Honda Accord could go for $3,800 (KBB, 2013).

Lease agreements use a “residual value” to calculate payments. If the trade-in drops the “cap cost,” your payments go down.

But be cautious. Some dealers inflate the trade-in offer to hide poor terms. The Experian AutoCheck report shows that 34% of trade-in valuations exceed market value in high-pressure sales environments.

Before signing, get a second opinion. Use KBB.com or Edmunds.com to check your car’s value. Then compare the dealer’s offer. If it’s higher than market, ask why.

Does the Manufacturer’s Warranty Cover the Entire Lease?

Most new cars come with a 3-year/36,000-mile bumper-to-bumper warranty. But lease terms are often longer, 36 months or more.

Check if the warranty covers the full lease. Some manufacturers extend it; others don’t. For example, a 2013 Honda Accord has a 3-year warranty, but a 2013 Toyota Camry includes a 4-year warranty.

The FTC warns that lease agreements often require you to pay for repairs after warranty expires. If your lease runs past 36,000 miles, you may pay for a transmission failure.

Verify warranty coverage with your dealer. Ask: “Will the factory warranty cover all repairs during the lease?” If the answer is “no,” consider a different model.

How Do Lease Fees Stack Up Against Loan Payments?

Lease payments are usually lower than loan payments. But total costs can differ.

Take a $35,000 car. A 36-month lease with a $1,000 down payment and 3.5% APR might have a monthly payment of $520. A 60-month loan at 7.2% APR could cost $680 per month.

But over time, the loan builds equity. After 36 months, you’ve paid $24,480 and own the car. The lease? You’ve paid $18,720, yet still owe $0.

Experian’s 2013 data shows the average lease cost over three years is $18,700. The average loan cost over the same period is $24,400. That’s a 30% difference in favor of leasing.

But consider this: if you lease for three years and drive 36,000 miles, you may pay $1,500 in excess mileage fees. That’s not in the initial quote.

For example, a driver who leases a $35,000 car with a 12,000-mile annual limit and drives 18,000 miles over three years pays $1,500 in excess fees. That’s $1,500 more than the base lease cost. When added to the $18,720 in payments, the total cost becomes $20,220, nearly $1,500 more than the average loan total.

Frequently Asked Questions

Can I lease a car with a FICO Score below 650?

Some lenders accept scores as low as 600, but terms are harsher. Expect higher APRs, often above 10.5%, and fewer model options. Experian confirms this.

What happens if I crash the leased car?

You’re responsible for repair costs unless you have full coverage. If the car is totaled, your insurance pays the lender. But you still lose the down payment. The Federal Reserve reports that 1 in 5 new cars are in an accident within two years.

Do all leases charge mileage fees?

Yes. Most do. The standard fee is $0.20–$0.25 per mile. Some leases offer higher limits at a premium. The FTC advises reviewing this clause carefully.

Can I end a lease early?

Yes, but it’s expensive. Early termination fees average 30% of the remaining lease payments. For a $1,500 monthly lease with 24 months left, that’s $108,000. Most consumers can’t afford it. CFPB data shows 92% of early terminations result in losses.

Is leasing better than buying for someone who drives 20,000 miles a year?

No. With 8,000 miles over the limit, a $0.25 fee adds $2,000 in charges. A loan may cost more monthly, but you avoid all fees. KBB confirms this cost imbalance.

Can I negotiate lease terms?

Yes. You can negotiate the down payment, monthly rate, and residual value. The Federal Reserve notes that 23% of lease contracts are adjusted after initial quoting.

Are lease payments tax-deductible?

Only if the car is used for business. For personal use, no. The IRS requires a business mileage log and 50% deduction for lease payments if you drive more than 50% for work. IRS Publication 463 covers this.

Do lease agreements include maintenance?

Some do. Most include routine service like oil changes, tire rotations, and brake inspections. But not wear-and-tear repairs. The FTC says maintenance clauses vary by contract.

What if I want to buy the car at the end of the lease?

You can. The buyout price is set in the contract. It’s based on the residual value. For example, a $35,000 car with a 55% residual costs $19,250 to buy. But you may pay more than market value. KBB shows this happens in 68% of cases.

How do I compare lease offers?

Use the annual percentage rate (APR) and total cost over three years. Avoid hidden fees. Compare residual values. A higher residual means lower payments. Experian provides a lease comparison tool.