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If you could get a new car every few years, with the latest features and technology, at a monthly price that’s affordable, would you? Leasing a new car offers you that opportunity, but you need to know how to do it right if you want to get the best deal.

Auto leasing started as a way for companies to easily expense their vehicle costs and luxury car drivers to always have the latest and greatest models. Today, new car leasing has broad appeal, with about three in 10 cars leaving dealerships leased rather than purchased. You can lease almost any vehicle, from subcompact cars to luxury large SUVs.

With leasing, you just pay for the depreciation that occurs over the term of the lease, plus interest and fees. While that sounds simple in concept, it can be much more complicated in practice. Leasing can be tricky and expensive if you've never done it before, and coming prepared with a bit of knowledge can go a long way in making your leasing experience a pleasant one. Here’s what you need to know when it comes to how leasing a car works.

Contents of This Guide:

How Is Leasing a Car Different Than Buying a Car?

When you buy a new car, you have to pay the entire price of the vehicle using cash, a car loan, the proceeds of a trade-in, or a combination of all three. When you lease a car, you only have to pay for the difference between the vehicle’s price and its expected value at the end of the lease, plus interest and fees. Say you find the perfect SUV with a $30,000 price tag, and it’s expected to be worth $20,000 after three years. If you lease it you just have to pay for the $10,000 in expected depreciation, plus interest and fees. If you buy it, you have to pay the full $30,000, plus interest and fees.

At the end of a lease, you return the vehicle to the dealership you got it from or, in some cases, another of the brand’s franchised new car dealers. There may or may not be some lease-end costs, depending on how much of a security deposit you made at lease signing. You'll then have the ability to purchase your leased vehicle, lease a new vehicle, or just walk away.

When you lease a car, you have no ownership interest in the vehicle. The title is kept by the leasing company, and you'll have specific limits on how you can use it, how many miles you can drive without a penalty, how you are expected to maintain it, and what condition it must be returned in.

A lease is a contract that cannot be easily broken without incurring substantial penalties. When you purchase a car, you can sell it at any time without penalty. You can’t do that with a leased car.

Why Is Car Leasing Cheaper Than Buying?

On a monthly basis, leasing a car is usually less expensive than buying. Because you're just paying for the vehicle's depreciation while you have the car, your monthly payments are typically lower than they would be if you purchase a vehicle.

Let's look at an example using a 2019 Honda CR-V to illustrate. For simplicity, we’ll say that you negotiated a $30,000 price for the purchase or lease, and you’re going to make a $3,000 down payment with either transaction. If you get financing for five years with a 5 percent interest rate on a loan from a bank, credit union, or other financial institution, the monthly payment is $510 for the purchase of the Honda. You can use our car loan calculator to figure this out.

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Let's say you choose to lease instead. For this example, we'll assume that your CR-V will be valued at $17,000 after three years and you're getting an interest rate (called the "money factor" in leasing) that's equivalent to 5 percent. The difference between the negotiated price and the residual value is $13,000. You'll pay $3,000 up front, and the remainder of $10,000 will get split up into equal monthly payments. Generally, your first month's payment is included in the amount you pay up front, so the remaining $10,000 gets divided over 35 equal monthly payments. Your lease payments will be about $308 per month, plus some fees.

For this example, your monthly payments when you lease will be about $200 per month less than when you buy.

Of course, there's a catch. When you finance a car, you don't have to make any payments once the car is paid off and you can potentially get a significant amount of money back when you sell the car. When you lease, on the other hand, you have to return your vehicle at the end of the contract and likely won't get any money back. If you want a vehicle to drive, you'll either have to take out a new lease, with new monthly payments, or purchase the car and have loan payments. In the long run, car leasing is usually more expensive than buying – and you’ll always have a car payment.

For more information about the differences between car leasing and taking out a loan to buy a new car, read our article on leasing versus buying.

Important Car Leasing Terms

One of the reasons that leasing a car can be confusing is that it has a vocabulary that’s different than terms you use with car buying. Here are some of the terms that you’ll want to know before you start looking at leases:

Capitalized Cost: The capitalized cost, or “cap cost” for short, is the price of the vehicle. With a lease, you should negotiate this price just as you would when buying an auto, though dealerships might not tell you that. Lease deals subsidized by automakers are the exceptions, as these incentives specify models with certain prices.

Cap Cost Reduction: Anything that reduces the price of the vehicle is called a cap cost reduction. It can be a negotiated price, the value of a trade-in, a down payment, or a special lease deal from an automaker. Cap cost reductions lower your monthly lease payments, the amount due at signing, or both.

Residual Value: The amount that the car is expected to be worth at the end of the lease is called its residual value. The residual value is set by independent companies, such as ALG (formerly known as Automotive Lease Guide), who are experts at estimating the future value of automobiles. The residual value will be specified in your lease documents and is rarely negotiable.

Lease Term: The length of the car lease is called the lease term. While typical leases last two to three years, the contracts can be written for almost any period of time. An exception are manufacturer-subsidized lease deals, which have specific terms.

Money Factor: Like everything else in leasing, even the interest rate you’ll be paying is expressed differently. It is called the money factor with car leasing, and you have to do some simple math to convert it to a comparable interest rate. To convert the money factor to a more familiar interest rate, you multiply it by 2,400. For example, if the lease shows a money factor of 0.00250, you multiply by 2,400 to see that the equivalent interest rate is 6 percent. To convert an interest rate to a money factor, you divide it by 2,400.

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Security Deposit: With leases, a security deposit helps protect the leasing company if you go over the allowable mileage, damage the vehicle, or default on the contract. If there are no costs at the end of the lease, you’ll get your security deposit back. If there are costs, they’ll be deducted from the security deposit. If the amount you have to pay exceeds the security deposit, you’ll have to find a way to get the cash and pay that amount when you return the vehicle. Not all leases have security deposits.

Due at Signing: The amount due at signing is how much you have to pay when you sign the lease documents. It usually does not include taxes or registration fees, so your out-the-door price can be significantly higher. The amount due at signing should include most fees from the leasing company and dealership. You'll want to watch to ensure that no fees that you weren't expecting find their way into the amount due at signing. It is sometimes referred to as the down payment.

Acquisition Fee: An acquisition fee is an amount charged by the dealership or leasing company for setting up the lease. Some lessors will negotiate the acquisition fee, while others do not. You’ll either have to pay the fee as part of your down payment or as part of the monthly payments. Typical acquisition fees range from a few hundred dollars to around $1,000.

Disposition Fee: Car Leasing contracts have fees at both ends of the lease. The end-of-lease counterpart to the acquisition fee is the disposition fee. In theory, it compensates the dealer for preparing your lease return for resale. If you immediately lease or purchase a new car, the dealership may waive the disposition fee or just roll it into the cost of the new transaction.

Mileage Cap: A car lease comes with strict mileage limits, or mileage caps, that specify how many miles you can have on the vehicle when you return it. The lease will also tell you how much per mile you will have to pay at lease end if you exceed the limit.

Buyout Price: The buyout price is the amount that you can purchase the vehicle for at any time during the contract. It will decline during the lease to at or near the residual price at the end of the lease term. If you want to buy the vehicle at any time during the lease or you need a way out of a contract, you’ll want to know the buyout price.

Closed-End Lease: Most consumer leases are closed-end leases where the value at the end of the lease is fixed at the residual value, and the consumer can walk away at the end of the contract regardless of the car’s market value. With an open-end lease, the lessee is responsible for any difference between the residual and market value.

Lessor: The lessor is the company that you lease the car from. Frequently it is financing arm of the automaker who built the car, but it can also be a bank, other financial institution, or a financing company. Your lease contract is between you and the lessor, not the dealership where you get the vehicle from.

Lessee: The lessee is the person or company who leases the car from the lessor. In other words, it’s you.

What Are the Best Cars to Lease?

The car you choose will have a huge effect on the amount you’ll pay for a lease. You want to lease a car that has a low cap cost, a high residual value, or both.

Finding a car that you can negotiate a low capitalized cost on is pretty easy – just look for vehicles that aren't selling very well. You can do this by exploring the buying advice section at the bottom of most of our new car reviews or finding vehicles that are nearing the end of their product cycles. If there’s a new model on the horizon, it’s a great time to get a good price on the outgoing car. Just remember that it’s never a good deal unless it’s a good car that meets your needs and budget. Each month, we cover the Best Cars to Buy Now to point out models with slow sales but good performance in our rankings. It’s a great place to start your shopping.

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Finding a vehicle with a high residual value is another way to get a great price on a leased car. Because a high residual means that a car isn’t depreciating quickly – and you pay for depreciation when you lease – you can get a lease with lower monthly payments or less due at signing. The residual value experts at ALG honor car companies and models each year with their residual value awards. Recent brand winners with multiple models that have great residuals include Subaru and Land Rover.

Of course, you never want to get a new car just because you can get a great price on it. Before you choose, explore our new car rankings and reviews to find a vehicle that offers the features and capabilities you need at a price you can afford. Our car reviews are based on the consensus opinions of the country’s top automotive journalists, blended with quantifiable information about safety and predicted reliability. Those reviews generate scores that we use to compare models against their peers.

How Do You Lease a Car?

Many of the steps to leasing a car are similar to buying a car. You have to set a budget, find a vehicle that fits your needs and lifestyle, determine what you want to do with your trade-in, and negotiate with a car dealership. It’s that last part that gets more complicated when you lease, but we’ll help you through the steps to getting a good deal in this next section.

  1. Set a Budget
  2. Know Your Trade-in Value
  3. Know Your Mileage
  4. Know How You Use Your Vehicle
  5. Know Your Credit Score
  6. Look for Lease Deals
  7. Negotiate the Price
  8. Know How to Compare Leases
  9. Time Your Lease
  10. Watch Out for Fees and Taxes
  11. Read the Paperwork Carefully
  12. Watch Out for Extras

1. Set a Budget

Most car buyers and lessees only look at the monthly payment when they consider a car deal. It's important to know whether that payment fits into your budget, but it's not the only number you should consider when thinking about a lease. Instead, you'll want to look at the total cost of the contract over its entire term so that you can compare different offers. We'll talk about how to do that in a minute.

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When you’re planning a monthly budget, you’ll want to think about more than just the lease payment. You’ll also want to look at how much it costs to insure your car and how much it will cost to fuel it. Different vehicles cost more to insure and fuel than others. Some jurisdictions tax lease vehicles more or less than others, so you’ll need to consider those costs as well. When you lease you may also need to get extra car insurance, called gap insurance, which will also add to your costs.

2. Know Your Trade-In Value

Deciding what you want to do with your trade-in can have a significant effect on what your new lease contract looks like and how much you spend on the lease payments and taxes. Knowing what your current vehicle is worth is essential, as is determining the remaining balance of your auto loan. You'll want to ensure that the value of your trade is sufficient to pay off its financing. While many dealers will be more than happy to roll the balance of your current financing into your new lease, it's a horrible idea to do so. It's like paying for two cars when you can only drive one.

It’s a good idea to stay focused on the capitalized cost when you lease. Allowing your trade-in to be packaged with the deal can lead to confusion and allow the salesperson to play with the numbers to make you think you’re getting a great deal when you’re not. They can show you a low payment on the lease by low-balling the amount they give you on your trade, or show you a high trade-in value, and build the cost into the lease payments. That’s why it is essential you know what your car is worth, and be wary if the dealer’s numbers stray far from the value you expect.

If you sell your own car and use the cash toward your down payment on your new lease, you can potentially get the highest price on your trade-in and save some money on your new lease. However, this can backfire if you are in an area with high sales tax. In many cases, the value of a trade-in at the dealer is taken off the price that you have to pay sales tax on, and your savings can be substantial if your trade-in has a high value and you have only a small loan balance to pay off.

3. Know Your Mileage

It is critical to have a good idea of how many miles you drive before you even consider leasing a car. Almost every lease contract has a strict mileage allowance. Exceed it, and each mile you drive will cost you 15 to 50 cents, depending on the car and the contract you sign. Those excess mileage charges have to be paid at the lease’s end.

Mileage caps aren’t usually a problem if you’re an urban dweller who doesn’t take too many road trips. If you live in a rural area where the nearest grocery store is 30 miles away, you have a lengthy commute, or you take long driving vacations, car leasing may not be a good option.

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In some cases, mileage allowances are negotiable, so be sure to inquire about getting more miles. However, they will likely want to charge you more to do so.

While you don’t want a lease with too few miles in its cap, you also don’t want a lease with way too many miles included. The depreciation reflected in the residual value is based on a certain number of miles, and if you’re well under that mileage, your car won’t depreciate as much. In other words, you’ll be paying for depreciation that won’t occur while you own the car.

4. Know How You Use the Vehicle

There are things that can cost you big time with a leased vehicle that you’ll want to avoid. First, you don't want to do anything that's going to run your mileage over the contract's mileage cap. Those things could include long road trips or using your car for a ride-sharing service such as Uber or Lyft.

Second, you don’t want to use your car for anything that can create excessive wear and tear. That can include things like the ride-hailing services mentioned above, or even things as mundane as smoking or carrying a pet in the car. If you park on the street or in lots where you get scratches and dings, it could cost you at the end of the lease.

Finally, you’ll want to read your lease contract carefully for any prohibited activities. Some leases don't allow you to use the car for "business purposes." That could include ride-hailing, sharing your car through a company such as Turo, or delivering packages on-demand through Amazon's Flex program.

If the purpose that you are planning to use your vehicle for requires customization, such as putting a ladder rack on a pickup truck, you’ll have to remove it before you return the car at the end of the lease. Leased vehicles must be returned in the same configuration as they left the showroom, though regular wear and tear is allowable.

Some leasing companies will not allow their leased vehicles to leave the country, especially to Mexico or further south, without special permission. Doing so can put your lease into default and require you to pay substantial penalties.

5. Know Your Credit Score

There is no place in the car-buying world where your credit score is more important than in leasing. To lease a car, you need good credit. If you want an automaker-subsidized lease deal, you'll need excellent credit. While you can lease a vehicle with bad credit, doing so is more expensive and challenging.

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Your credit score is a snapshot of how likely you are to pay your bills and other obligations on time, as predicted by one or more of the major credit reporting agencies – Equifax, Experian, and TransUnion. Your credit scores are based on the information in your credit reports. You have more than one, as the credit reporting agencies all use slightly different models. They’re three-digit numbers between 300 and 850. If your score is above 680, leasing will likely be pretty easy. If it’s above 740, you’ll have lessors fighting for your business.

Well before you start thinking about a lease, you’ll want to check your credit scores and the reports behind them. It takes time to correct errors and improve your score, so you might need to put off your new lease while you mend your credit. Whatever you do, don’t start closing down your credit card accounts in an attempt to raise your score. Doing so will likely have the opposite effect. It’s usually better to pay them off and keep them open (just don’t use them).

Many credit card companies will provide your credit score as a perk of being a cardholder. If they don't, there are several websites that will give you your score in exchange for some personal information. You are legally entitled to a copy of your credit report from each of the three reporting agencies once per year. The official portal to getting those reports is AnnualCreditReport.com.

Another thing that lessors will look at is your employment status and history. They like to see stable employment, without job-hopping or long periods of unemployment.

6. Look for Deals

Ok, so you’ve done most of your homework, and now it’s time to start shopping. One of your first stops should be our lease deals page, where you can find the best deals that manufacturers are offering on cars that you are considering. When cars aren’t meeting sales expectations or are nearing the end of their product life cycles, automakers offer incentives to pick up the sales pace. Incentives reduce the monthly lease payments, the amount of your down payment, or sometimes both.

Getting an automaker-subsidized car deal means that you’ll have to give a few things up. Most deals only apply to specific models, trim levels, and option packages, so you won’t be able to customize your ride. The cap cost and money factor on lease deals are typically fixed, so there’s no room for price or interest-rate negotiation.

7. Negotiate the Price

Unless you are getting a manufacturer-subsidized lease deal, you'll want to negotiate the capitalized cost just as you would if you were haggling over the purchase price to buy the vehicle. Some consumers believe that the price is non-negotiable when you're leasing, but that's simply not true. You can prepare yourself before heading to the dealership by researching the cost of the vehicle and what others are paying for it. Some experts recommend settling on a purchase price before telling the dealer that you are considering leasing.

Check out our article on how to negotiate the price of a car for more tips, and be sure to look at the buying insights at the end of our new car reviews to see if any vehicle you’re considering is selling well or not.

Keep in mind that leasing a car is a business transaction. While there might be a lot of emotions involved when getting a new car, you'll want to keep your feelings in check during the negotiation. Most consumers only get a new car once every few years, but car salespeople negotiate prices every day, and they are skilled at incrementally moving you to the deal that they have in mind. Your most powerful tool is to walk away when you are not comfortable, or you feel the deal that they are offering is wrong for your financial situation.

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When dealing with the salesperson, be polite yet firm and confident in the information that you have about pricing. If you go in with the goal of bullying the salesperson into giving you a good deal, you’ll likely leave unsatisfied. It’s much easier for a salesperson to give a bad deal to a jerk than someone they like.

It’s a good idea to shop at multiple dealers, and don’t be shy about letting each one know that they are not the only one in the game. Dealers often trade models between one another, so you may get offers from multiple dealers on the same vehicle. Fortunately, you don't even need to drive around to shop at various dealers. Just email their internet sales manager or pick up the phone.

8. Know How to Compare Leases

When you’re shopping for a car lease, you need to know how to determine the total cost of the contract so that you can compare offers with various terms, payments, and amounts due at signing. There’s a simple way to do so. It doesn’t take into account taxes like a full-blown car lease calculator does, but it will give you a good point of comparison between different lease offers.

Take the number of months in the lease term, and subtract one from it. Then multiply that number by the monthly payment, and add the amount due at signing to come up with the total lease cost. You use one less than the number of months in the contract because your amount due at signing usually includes the first month’s payment.

As an example, we’ll compare a couple of recent deals on a Toyota Camry and a Honda Accord to figure out which of the sedans is a better deal. Honda’s lease deal for the Accord requires $249 per month for three years with $2,399 due at signing. Toyota’s lease deal on the Camry costs $199 per month for three years, plus $3,498 due at signing.

To determine the Accord’s total lease cost multiply $249 by 35 – remember, one less than the total number of months in the lease term – and add $2,399. The total cost comes out to $11,114. The Camry’s cost is $199 times 35 plus $3,498, or $10,463. The Camry is a better deal overall, even though you’ll pay significantly more at lease signing.

9. Time Your Lease

Dealers and salespeople have goals that they need to hit each month, quarter, and year. Find a dealer or sales rep who hasn't hit their goal near the end of the period, and you'll likely have a better chance of getting a great deal. The idea of going into the dealer just before they close and expecting the dealer to practically give the car away so they can go home is an urban legend. If they think you’re serious, they’ll stay all night. If they think you’re playing games, they’ll invite you to leave and come back another day. Sometimes dealers have specials on weekends, but they’ll also be busy and interested in customers they know they can profit the most from. According to TrueCar, the best time to shop is on a weekday.

10. Watch Out for Fees and Taxes

Different jurisdictions have different rules for taxing leases. Some will tax the amount due at signing and each monthly payment, while others will tax the entire capitalized cost. Some allow you to deduct the value of your trade-in and some won't. It's not a good idea to take the salesperson's word for how you'll be taxed. If you have questions, you should talk to a tax professional who understands your finances and isn’t trying to sell you a lease.

Leases come loaded with fees. It's important to know which can be negotiated and which are non-negotiable. The more fees you can pay up front, the better, though many lessors will offer to roll them into your monthly payments. The more costs included in your payments, the more likely that the lease’s buyout price will be higher than the value of the car, which is something you don’t want.

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Registration and licensing fees are nonnegotiable unless the dealer is marking them up. Lease origination fees, or acquisition fees, are the cost of setting up the contract. Depending on the leasing company, they may or may not be negotiated. Most leasing companies won't negotiate the disposition fee at lease signing but may waive it if you immediately get a new lease from the same dealership when your lease period ends.

11. Read the Paperwork

You might be mentally exhausted after doing all of the research, talking to multiple dealers, and negotiating your lease. Unfortunately, the moment where your wallet is at highest risk is when you're signing the final paperwork. It is critical that you read everything put in front of you to sign.

Pay particular attention to the terms of the lease: the monthly payment, the capitalized cost, the down payment, the money factor, and any cap cost reductions such as lease deals or trade-ins. Make sure that they exactly match your agreed-upon deal. If the documents aren’t accurate or complete, do not sign them. Even if the finance officer says that they’ll fix errors or blanks spaces later, don’t sign them unless they are correct. It's much harder to correct legally binding documents with your signature on them than it is to ensure that they are right in the first place. You may even find an unscrupulous finance officer who gets amnesia when the errors are in the dealership's favor.

If you are pressured to sign incomplete or inaccurate documents, you should consider it a huge red flag and walk away from the deal. It’s important to use your sense of intuition when car buying or leasing. If it feels wrong, make sure you get a satisfactory explanation, and be prepared to leave if you are not happy with the answer. Even if you have invested a whole day negotiating a deal, not stepping away if something doesn’t feel right is a mistake that can haunt your finances for years.  

12. Watch Out for Extras

At most car dealerships, the finance manager who you work with to sign the paperwork gets a commission for every add-on that they can sell you. Before you buy any costly add-ons, you need to determine if you really need them, find out if you can get them outside of the dealership, and decide if the price for the item is appropriate. Most of the products they try to sell you come from third parties and have significant markups that add to the dealer’s profit on the car.

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One add-on that is critical for lease buyers, and likely required by the leasing company, is gap insurance. We’ll get to what it covers in a moment, but understand that the dealership will undoubtedly pressure you to buy it from them. However, you don't have to buy it from the dealer. Many car insurers and financial institutions also sell gap insurance, and it’s likely to be far less expensive from one of them. You should already be talking to your car insurance company before you go to the dealer – to ensure that your new ride is covered before you drive off the lot – so it’s a good time to talk about gap coverage. Even if you don’t get financing from them, many banks and credit unions will sell you gap insurance.

Sometimes dealerships will try to mask the real cost of add-ons by explaining that they are rolled into the lease and will only cost you a few dollars a month. Do the math yourself to figure out the full cost of the products by multiplying the monthly cost of the add-on by the number of car payments in the lease term.

What to Do After You’ve Leased a Car

Even after you’ve left the dealership in your spiffy new ride, there are still some things you need to do to protect your wallet and ensure that your lease doesn’t cost more than you expect it to.

  1. Get Gap Insurance
  2. Take Care of Your Leased Vehicle
  3. Make Your Payments on Time
  4. Prepare for the End of Your Lease

1. Get Gap Insurance

Most leasing companies will require you to carry gap (guaranteed asset protection) insurance on your leased vehicle. Gap coverage protects both you and the leasing company by ensuring that your financial obligation to the lessor is satisfied if you total your car or it is stolen.

If, for example, your new Camry is stolen two years into the three-year lease, you still owe the leasing company the current buyout value of the car, plus an early termination fee. Your comprehensive auto insurance policy will provide you with much of the cash to pay back the leasing company, but if the market value of the car is lower than the buyout cost, you'll owe the difference to the lessor. Gap coverage pays off the lessor, satisfying your obligation to them, so you don't have to make any further payments.  

As mentioned in the previous section, you will likely hear a sales pitch to buy gap at the dealership. Be sure to shop at your car insurance company and other third parties before you agree to buy it from the dealer.

2. Take Care of Your Leased Vehicle

If you purchase a vehicle, there's no requirement that you take care of it, perform maintenance, and watch the number of miles you put on it. With leasing, it’s just the opposite. When you return your leased vehicle at the end of the lease, you will be required to prove that you performed all scheduled maintenance, pay to repair any damage, and pay for excess mileage. While some wear and tear is allowed, excess wear will cost you.

During the term of the lease, pay close attention to the operation of all of the vehicle’s systems and make sure that any repairs that can be covered under warranty are. If there are any open recalls, make sure they are taken care of.

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Many car leasing companies use credit cards to determine what scratches and dings are acceptable. If the scratches and dents can be fully covered when you place standard-size credit cards over them, you won’t be charged. If any part of the damage is visible beyond the edges of the card, you’ll have to pay to repair it as one of your end-of-lease costs. Since they have to sell your leased vehicle as a used car, they have a financial incentive to ensure that as much of the damage as possible is charged to you and repaired before the car goes on the market.

3. Make Your Payments On Time

In order to protect your credit rating and avoid defaulting on the lease, you’ll want to make all of your lease payments on time. An easy way to do so is to set up automatic payments from your bank account to the leasing company, and then verify each month that the payment has been made.

Making late payments or missing installments is the fastest way to put your credit score into freefall. Remember, you’ll need your credit to be in great shape so you can lease your next car, so it’s critical properly pay your current lease payments.

4. Prepare for the End of the Lease

As you near the end of your lease, you'll want to start thinking about whether to buy the car you're currently driving or lease a new one. If you're happy with it and its buyout cost is in line with similar pre-owned cars on the market, you'll want to consider buying it. If similar vehicles are selling for much lower than your buyout cost, you would be better off to return it and buy one of those other cars.

If you're lucky enough to have a car that didn't depreciate as much as its residual value indicated, you should consider buying it at its buyout price and reselling it for the higher market price. You can put the extra cash you get toward a down payment on your next lease or purchase.

If you are going to turn the vehicle in at the end of the lease, you should remove any custom items you’ve added, even if you think they add value to the car. Most contracts stipulate that vehicles must be returned with the identical equipment they had when they left the dealership. Spend some time cleaning the car out just as you would if you were selling it as a used car. If you return it dirty or full of trash, the leasing company will do whatever they can to make you pay for preparing it for sale.

Ending Your Lease

It is critical to your financial future that you do not default on the lease. The price of a lease is based on the assumption that you will make all of your lease payments through the end of the lease, and it is a legally binding contract. If you don’t make your payments, the lessor can hold you responsible for all payments at once and sue you for payments you don’t make. Missing payments or going into default will make it hard, if not impossible, to get a new lease.

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If you can’t make your lease payments, one of the first things you should do is contact the leasing company to see if you can work out a solution. In most cases, neither you nor the lessor wants to see a default. If your issues are short-term, they may offer to defer a payment or two until you get back on your feet. You’ll have to pay them at the end of the lease, but you’ll avoid having a derogatory remark on your credit report.

How to Get Out of a Lease

For lessees with long-term financial problems or those who want to move on to a different vehicle, there are ways to get out of a lease agreement. Some are costlier and damaging to your credit than others.

You might be wondering if you can get out of your lease because of a financial calamity such as a medical issue. The answer is no in most cases, because a lease is a contract and you agreed to pay. An exception is for members of the military, who get some remedies and protections under the Servicemembers Civil Relief Act if they are deployed or permanently assigned to a different station on active duty.

Leasing a New Car: When the reason you want to get out of a lease isn’t a financial hardship, and you just want a new car, many dealers will waive certain penalties as long as your new ride is the same brand as your lease return. It works fine if you are near the end of your lease, but beware if you're early in your lease term, as they'll roll your remaining lease costs into the new contract. You'll be paying for two cars, but you'll only have one of them in your driveway.

Lease Swaps: If your leasing company allows it, you can transfer your lease to someone else who is willing to take over the payments. Companies such as SwapALease.com and LeaseTrader.com charge a fee to act as matchmakers between those looking to get out of their leases and those looking for an affordable lease. You advertise your car on their sites, hoping to find someone willing to take on your contract.

There are a few things to consider when looking at lease swapping. First, will your leasing company allow you to swap your lease? If they do, will they take your name completely off it, or will you still be liable for the payments if the person who assumes your lease stops making them? If you can’t find the answers in your lease contract, be sure to get them in writing from your leasing company before you enter into a lease swap.

In addition to the fee that you’ll have to pay the company that does the matchmaking, you may need to put some extra cash into the deal to make your car attractive to potential lessees. That’s especially true if you have a lot of miles on the car.

Lease Buyout and Sale: Another potentially inexpensive way of getting out of a lease is to purchase your vehicle from the lessor at its buyout value, then sell it to a third party. This method of getting out of a contract works best if your vehicle is worth more than the current buyout value of the lease and you do the work of selling it yourself so that you get the highest price possible. If you trade it into a dealer or sell it to a wholesaler, you likely won’t get enough cash to cover the buyout cost and early termination fee, though they are better equipped to take care of all of the paperwork and payoff for you.

It also takes good timing. You’ll need a quick sale so you can pay off the lease, along with a buyer that is willing to wait to get the title, which won’t happen until after the leasing company sends it to you.

Early Termination: Though better for your credit rating than a lease default, an early termination is an expensive way to get out of a lease. When you end your contract early by returning the car to the dealer, you'll be liable for both an early termination fee and potentially thousands of dollars to compensate the lender for the payments that you won’t be paying over the rest of the lease. Any excess mileage or wear costs will be added to the amount due. If you put down a security deposit, that will reduce the amount you owe.

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It is essential that you carefully follow the procedure outlined in your contract for early termination to avoid damaging your credit. If the reason you need to terminate the lease is a financial hardship, an early termination can be tough; your potential liability can climb up to thousands of dollars, which you may not be able to pay. If you don't pay, the lessor can go to collections to try and recover that money or file suit against you. Either outcome would be devastating to your credit score.

Lease Default: If you simply stop making your lease payments, the lessor will declare you in default. They will then repossess the car and attempt to recover the value of the lease. This is the worst way to end a lease, considering the damage that it causes to your credit, and it makes leasing a car impossible for the better part of a decade. It will also lower your credit score. That makes buying a car more expensive, since you’ll have to pay a higher interest rate on any loan you qualify for.

Some lessees will choose to play hide-and-seek with their leased vehicle to avoid repossession. That’s a horrible idea, as the leasing company can add the cost of repossession to the balance you owe (in many states). Make it expensive for them to get the vehicle back, and they’ll make it expensive for you.

More Shopping Tools From U.S. News & World Report

Getting behind the wheel of a new or new-to-you used car can be a great experience, though finding the right vehicle at a reasonable price takes a lot of work. Fortunately, the team at U.S. News Best Cars is ready to help you through the process of finding the right car, getting a great deal, and keeping your costs affordable during the life of the vehicle.

Whatever vehicle type you’re looking at – crossovers, hatchbacks, minivans, sedans, pickups, or SUVs – our new car rankings and used car rankings will show you which vehicles are at the top of their class, and which ones may leave you wanting more. Our consensus-based reviews generate scores that we use to rank vehicles against their peers. They also allow you to evaluate vehicles based on factors that car buyers tell us are critical to their decisions, such as safety and predicted reliability.

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When you’re just about ready to head to the dealership, be sure to explore our lease deals page to see the best offers from automakers. Take advantage of a manufacturer-subsidized lease deal, and you can potentially save thousands of dollars over the life of the lease.

You can save even more money with the U.S. News Best Price Program, which links lease customers with local dealers offering guaranteed savings off MSRP.

Our support doesn’t end when you leave the dealer’s lot. We’ll help you find the right car insurance for your new ride and even the right tires for when you need to replace them. We’ll show you how to maintain the value of your car, without doing things that will hurt it.