which statements apply to leasing a car? check all that apply.


Leasing a vehicle is an alternative to buying one, but it comes with its own set of pros and cons. If you’re considering leasing your next car instead of purchasing it, there are several important factors to understand beforehand.

This article will explore some common statements related to leasing and indicate which ones apply.

The terms of your lease agreement are legally binding.

This statement applies to leasing a car. A lease is a legal contract that outlines the terms and conditions of financing the vehicle over a set period of time, usually two to four years. Both the lessee (you) and the lessor (the dealership or leasing company) are bound by

the terms agreed upon in the contract. Things like the monthly payment amount, mileage allowance, excess wear and tear fees, lease end options, and penalties for early termination are all legally enforceable.

Failing to adhere to the terms can result in additional costs, damage to your credit, or potential legal action. It’s important to carefully review the full contract before signing to understand your rights and obligations.

The Terms Of Your Lease Agreement Are Legally Binding.
The terms of your lease agreement are legally binding.

You have to return the car when the lease ends.

This statement applies to leasing. Unlike with purchasing, where you own the vehicle outright at the end of the loan, a leasing contract is for temporary use of the car only. At the end of the agreed upon lease term, which is usually between 24 and 39 months,

the vehicle must be returned to the leasing company. They will then inspect it and charge fees for any excess wear and mileage over the allotted amounts in the contract.

Not returning the car or purchasing it at the predetermined residual value would constitute a lease violation. The only exception is if your contract allows you to purchase the car at the end for a pre-negotiated price.

You Have To Return The Car When The Lease Ends.
You have to return the car when the lease ends.

You can negotiate the terms of your lease agreement.

This statement applies to leasing. While leasing contracts have generally standardized terms set by the manufacturer, dealerships do have some flexibility that allows for negotiating. Things like the monthly payment amount, amount due at signing,

excess wear and tear fees, and mileage allowances can sometimes be adjusted to make the lease terms more favorable. Knowing average residuals and money factors can help you negotiate a better deal.

It’s important to comparison shop with multiple dealerships to leverage their offers against each other. An experienced leasing negotiator may be able to get you thousands less over the life of the contract through careful bargaining.

You Can Negotiate The Terms Of Your Lease Agreement.
You can negotiate the terms of your lease agreement.

You have to maintain full coverage car insurance.

This statement applies to leasing. As you do not own the vehicle, the leasing company requires you to carry both collision and comprehensive insurance over the term of the lease. This is usually outlined upfront in the contract.

Full coverage will protect both you and the leasing company in case of an accident, theft, or other insurable incident with the car. Not maintaining the proper minimum mandated coverage would put you in violation of your lease agreement.

It’s important to verify the required coverage levels with your leasing company and provide documentation of your policy to them annually.

You Have To Maintain Full Coverage Car Insurance.
You have to maintain full coverage car insurance.

You can choose your own repair facility for accidents or breakdowns.

This statement applies to leasing a car. While the leasing company has a vested interest in the upkeep and condition of the vehicle, by law lessees are able to choose which repair shop works on their car if anything goes wrong.

As long as repairs are properly done to manufacturer standards and do not negatively impact the residual value, you are not obligated to only use dealer service centers. This freedom of choice allows using independent shops that may offer better rates or more convenient locations.

Just be sure any insurance claims process the repairs correctly and that the leasing company is notified of accidents/breakdowns.

You Can Choose Your Own Repair Facility For Accidents Or Breakdowns.
You can choose your own repair facility for accidents or breakdowns.

You pay sales tax upfront on the full value of the car.

This statement applies to leasing. When finalizing a lease agreement, you’ll need to pay various taxes and fees in addition to your first monthly payment and security deposit. One of the biggest is sales tax.

Unlike when financing a purchase, where taxes are spread out over the loan term, lessees pay all applicable sales tax upfront. This is based on the full MSRP of the vehicle rather than just your down payment. The taxes can add thousands to your initial costs.

Having the funds available at signing is important to cover this additional lease obligation. A benefit is you get the whole tax credit immediately rather than portions over time.

You get to keep optional services and upgrades at lease end.

This statement does not fully apply to leasing. While you have use of any extra options and accessories during the lease period, come turn-in time most can not be kept without additional charges. Paint or bodywork, custom wheels, upgraded interiors,

specialized equipment and more usually have to be removed or you’ll face a bill. Some leases allow purchase of very select add-ons like tinted windows for a predetermined price.

Read your contract closely regarding ownership of extras at lease termination. Plan for returning the car to its original factory condition unless purchasing it, to avoid expensive wear and tear penalty fees.

You Get To Keep Optional Services And Upgrades At Lease End.
You get to keep optional services and upgrades at lease end.

You must maintain the car to manufacturer standards.

This statement applies to leasing. Part of the legally binding lease contract is an obligation to properly maintain the vehicle over the term. This means following the manufacturer recommended maintenance schedules laid out in the owner’s manual.

Things like oil changes, brake and transmission fluid services, tire rotations and inspections must be done regularly and documented. Excessive wear to major components from neglect could result in charges at turn-in.

It’s also important to repair any issues promptly before they lead to further damage. Taking good overall care of the car and fixing problems early helps limit your liability at lease end.

You can get out of the lease early by selling it to someone else.

This statement applies to leasing with some conditions. While you are able to transfer the remaining obligation of your lease contract to a qualified third party buyer, there are usually fees involved that may make it unattractive.

The leasing company must approve the new lessee through a credit check. You’ll likely be charged for any negative equity between the car’s current value and remaining payments. There may also be an additional transfer fee.

It’s rarely financially advantageous over just continuing payments. Exceptions include significant life changes that require moving overseas or other extenuating circumstances accepted by the leasing company.

You Can Get Out Of The Lease Early By Selling It To Someone Else.
You can get out of the lease early by selling it to someone else.

You pay only for the miles you drive each year and can roll over unused miles.

This statement does not fully apply to leasing. Most leasing contracts stipulate an annual mileage limit, typically between 10,000 and 15,000 miles. While you are only responsible for excess miles driven above this threshold, they do not roll over if unused.

Any amount over the listed annual allowance must be paid for, usually around $0.25 per mile. There is no banking of low miles from one period to offset potential high mileage in another year.

It’s important to conservatively estimate your driving needs and choose an allotment with adequate buffer room. Going significantly over could add hundreds to your costs at lease turn-in.

You get equity back if you total the car in an accident.

This statement does not apply to leasing. Since the vehicle is still owned by the finance company or manufacturer, there is no equity built up over the lease period in the traditional way.

If the car is totaled from a collision, you’d simply walk away from the remaining balance without financial consequence. However, you’d also lose usage of that vehicle and face paying for a replacement upfront if needing another car.

Comprehensive insurance required with leasing covers the value loss for the leasing company in these situations. But as a lessee, you do not profit or gain money back from insurance payouts on damaged leased vehicles.

You have more freedom to customize the vehicle than if buying.

This statement does not fully apply to leasing. While you can install agreed upon factory or dealership accessories, most aftermarket modifications are prohibited without leasing company approval.

Things like non-OEM wheels, window tinting, sound systems, lift kits, lowered suspensions and cosmetic bodywork could impact resale value or be ineligible for the certified pre-owned program. Any changes must not damage components, void warranties or

negatively affect the appraised residual value. Many leases explicitly ban aftermarket alterations without permission. Violations can result in fines and fees at turn-in so it’s best to get authorization in writing first before customizing the appearance or performance.

Advantages of Leasing Over Buying

While leasing has certain obligations, there are also benefits compared to purchasing a vehicle:

Lower monthly payments, as you’re only paying for partial use rather than full ownership. This makes newer vehicles more affordable. No long-term commitment – Leases are typically 2-4 years, so you can get a new model more frequently without being tied down for 5+ years.

Mileage flexibility – Higher-mileage drivers can choose larger allowances to match usage. There’s no depreciation worries with excess miles. Technology upgrades – Leasing allows always driving a late-model vehicle with the latest features. Owners may feel outdated faster.

Maintenance included – Some leases have scheduled services bundled into monthly costs for convenience. Tax advantages – Interest and depreciation write-offs can make leasing more beneficial on taxes for businesses.

Costs of Leasing a Vehicle

While leasing transfers some traditional purchase costs over the term, there are still substantial initial fees:

  • Sales tax on full vehicle MSRP due at signing (can be thousands extra upfront)
  • Capitalized cost reduction (down payment equivalent) of typically 10-25% of MSRP
  • First monthly payment + acquisition/documentation fees
  • Residual value (projected resale price used to calculate payments)
  • Money factor interest rate built into payments despite being labeled “maintenance”

Common Leasing Mistakes to Avoid

  • Exceeding the negotiated mileage allowance which results in high per-mile overage fees
  • Not maintaining service records to prove scheduled maintenance was performed
  • Neglecting repairs which canlead to excess wear/damage charges at turn-in
  • Missing payments which damages credit and leads to loan default penalties
  • Being unfamiliar with turn-in guidelines for car condition and return procedures
  • Failing to purchase the vehicle at predetermined residual price if wanting to keep it

I hope this additional context on advantages, costs specifics and pitfalls provides a more well-rounded perspective on factors to evaluate with leasing. Please let me know if any part of the article needs more explanation or expansion.

Calculating Your Lease Payment

There are a few key factors that determine your monthly payment:

  • Vehicle selling price (capitalized cost or adjusted cap cost)
  • Estimated residual or projected future value
  • Money factor interest rate
  • Length of lease in months

An online lease payment calculator can help you estimate costs upfront based on these inputs. Understanding how payments are derived gives power in negotiations.

Taxes and Fees

Beyond sales tax on the full vehicle price, expect additional regulatory fees:

  • License/registration: Paid to your state’s DMV annually
    -Lease origination or acquisition fee: Common $500 charge from the leasing company
    -Disposition fee: Fee charged if not returning or purchasing the vehicle at lease end

Ask for clarification on all applicable taxes, titles, plates and processing costs at signing.

Maintenance Responsibilities

Read your contract regarding services included and responsibilities for wear items like:

  • Oil changes
  • Tires
  • Brakes
  • Light bulbs
  • Wiper blades
  • Fluids

Exceeding reasonable usage guidelines for any parts could incur charges. Keep receipts.

Lease Options at End of Term

Leases usually provide three options at conclusion, with costs varying situationally:

  1. Turn the car in
  2. Purchase the vehicle outright for pre-set residual price
  3. Trade-in or upgrade to a new lease

Understanding the residual buyout amount upfront allows better planning.

I hope these additional sections help address different factors to evaluate and consider within the leasing process. Please let me know if any other topics would be valuable to cover.


What questions should someone ask when deciding whether to lease or buy a car?

Some key questions include: How long do I plan to keep the car? How many miles will I drive annually? Do I want to own or always have a new car? What can I afford upfront? What ongoing costs matter most? Leasing may be better for frequent upgrading. Buying works for long-term ownership.

What to consider when buying or leasing a car?

Factors include purchase price versus lease payments, interest rates, mileage limits, excess wear and tear fees, required insurance, maintenance responsibilities, residual values, service schedules, if you want to customize, end of lease options and buyout amounts. Doing research on average costs helps negotiate the best possible deal.

What’s the downside of leasing a car?

You’ll pay more interest over time versus buying. At lease end, you have nothing to show for payments made. Unexpected costs like excess mileage fees or damage charges apply. Mileage limits may not match your needs. Late payments damage your credit. You cannot customize without permission.

When you lease a car you have to be concerned about depreciation?

No, depreciation is not a concern when leasing since you do not own the vehicle. As a lessee, any loss of value over the lease term does not financially impact you. You are only responsible for agreed upon costs like monthly payments, excess wear and tear fees if limits are exceeded, and taxes upfront rather than over time like with purchasing.


In summary, leasing a vehicle can be a smart financial option for many drivers, but it’s important to go into it fully informed of both the benefits and obligations involved. While leasing lowers monthly costs and provides flexibility to upgrade models frequently,

there are also extra fees, insurance requirements, and contractual stipulations to understand. Taking the time to accurately assess your anticipated annual mileage, negotiate the best possible terms, carefully read all lease documents, and know the

proper vehicle return guidelines can help avoid unwanted charges down the road. Maintaining thorough service records also protects you in the inspection at lease end. For those who want a new vehicle experience without long-term debt or full depreciation

risks, leasing delivers convenience when done correctly. But those planning to keep their next vehicle long-term are usually better served purchasing to get equity building working in their favor.

With technology improving rapidly, leasing satisfies those who always want the latest features and solves the issue of feeling outdated too soon. On the flip side, frequent upgrading provides no long-lasting assets and costs can pile up.

Overall, leasing is not necessarily cheaper than buying depending in individual circumstances, but it does provide options that work well for certain lifestyles or needs. Going in with open eyes to all the details involved helps ensure the right financing

decision is made for your driving and budgets needs. An educated approach to leasing helps avoid surprises down the road. I hope this comprehensive overview of leasing considerations provides useful information to feel confident about the leasing process. Please feel free to reach out with any other questions.

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