Leasing a vehicle might help you get around in style, but a lease isn’t always as easy on the wallet as the low monthly payments might make it appear. Before being lured into a lease agreement, be sure you know all the costs — especially the cost of insurance.
More Americans seem to be choosing the short-term option for their transportation needs: Edmunds.com reports that leasing is at a five-year high nationwide. But getting into a lease without some upfront research could cost you a lot.
One of the biggest hidden costs in a lease comes in the form of auto insurance. Auto insurance is not “one size fits all.” Upgrading to a different make or model can increase your premiums quite a bit, especially if you’re leasing a luxury car.
Leasing agreements also often require you to get additional insurance to cover the leasing company’s losses if the car is damaged. As usual, you’ll have to purchase your state’s required minimum liability coverage. To that, you’ll need to add collision coverage, in case the vehicle is damaged in a crash, according to the Insurance Information Institute. Then add comprehensive coverage, which covers other risks like theft and vandalism. These two forms of coverage, which are optional when you buy a car, will increase your insurance premiums — and might make a low monthly lease payment less attractive.
Collision and comprehensive coverage aren’t the only extras that leasing drivers will need to buy. Once you drive the car off the lot, it loses value rapidly. If you total the car, your insurance company will write a check for its market value. But you’ll still need to pay the leasing company the full amount you owe. “Guaranteed asset protection,” often called GAP insurance, covers the difference between what you owe the leasing company and what your insurance company is willing to pay. In fact, it’s often included in the lease automatically, according to the Insurance Information Institute.
In addition to insurance costs, leasing contracts often have strict rules that can result in extra charges. Mileage limits, for example, restrict how much you can drive the car within a year, according to Edmunds.com. If you go over that limit, you’ll have to pay for each excess mile. It’s how leasing companies help make up for the depreciation of the vehicle.
Avoid leaser’s remorse by contemplating these issues before signing a contract. Talk with your auto insurance agent before picking out your new ride — and don’t make any decisions based only on the “low” monthly payments that the dealer may be offering.