The Downsides of Car Leasing

Do you know what "residual value" or "money factor" mean? If not, you're not likely to get a good deal on the lease for the car of your choice.

Walk into a car dealership looking to lease a new car and you’re likely to hear a lot of terms you’ve never heard before and don’t understand. Unless you know what terms like “residual value” or “money factor” mean, you’re not likely to get a good deal on the car of your choice. And even if you do manage to drive a leased car off the lot without getting beaten up over the negotiating table, you still have a lot to worry about.

One pitfall is the early termination fee. Some leasing companies will ask you to pay off the entire lease if you turn the car in early; others will charge a flat fee. Even if you plan to keep the car for the entire lease period, lease termination could result if you have an accident.

You should also check your contract to make sure there are no restrictions on where you can drive the car. The standard lease contract usually says you can’t take the car out of the state where it’s registered for more than 30 days without the leasing company’s consent. If you drive a lot, you may also end up owing the leasing company 15¢ to 25¢ a mile for every mile over the limit in the contract — between 10,000 and 15,000 miles a year.

If you’re set on leasing, don’t let the salesperson know until you’ve negotiated the price of the car, say auto-buying experts. Once the salesperson knows you’re leasing, the price of the car tends to get set in stone. And bone up on leasing lingo — residual value means the estimated value of the car at the end of the lease period. And the money factor is used to calculate the interest rate. For a rundown of more car-lease terms, go to

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