Car Leasing – Contract Terms and Definitions

ImageMost car leasing contracts or agreements have common elements you’ll need to be familiar with. Many experts recommend you get a blank car leasing contract from a dealer before you plan to lease a car so you can make sure you understand the terms and conditions. Don’t wait until you’re signing papers to actually read – and more importantly, understand – them.
Here are some of the most important components of a normal car leasing contract:

Disclosure Statement
The law requires that car leasing contracts include a section in which certain facts and figures are disclosed to you. This section in the contract is usually titled Federal Consumer Leasing Act Disclosures. The following items are required:
• The amount due at signing: how much you’ll have to pay to initiate the lease.
• The monthly payment: how much you’ll pay each month.
• Any other charges: application fees, document preparation fees, or any other charges.
• The total of all payments: how much you’ll pay over the term of the lease.
• How the monthly payment is determined: the “interest” rate and other fees used to calculate the monthly payment.
• The early termination statement: what happens if you wish to terminate the lease early (typically there’s a very large penalty for doing so).
• The “wear and Tear” explanation: what happens if your car’s condition is poor than stipulated when the lease term ends.

Studies by consumer agencies show that a significant percentage of car leasing contracts contain mistakes, whether those mistakes are legitimate or intentional. You must be able to catch and correct these problems before you sign the contract. Afterwards is too late. Always read the contract and able to verify the monthly payment figures before you sign any car leasing agreement.

Insurance
Most auto leasing agreements require you to maintain insurance coverage: bodily injury or death liability: $100,000 per person / $300,000 per occurrence; property damage liability of $50,000, and comprehensive and collision for actual value with no more than a $500 deductible. In Canada, $1,000,000 in liability coverage is required. While this may be more coverage than you might buy normally, it makes sense to have maximum protection regardless of whether you're leasing or buying.

Excessive Wear and Tear
Car leasing contracts specify that you must return the car at lease-end with no more than "normal" wear and tear. Most new car leasing contracts do a pretty good job of spelling out exactly what "normal" means. Basically, it means you have to take reasonably good care of the car and keep it maintained. In general a car leasing agreement does not expect the car to be in pristine shape when you return it; of course, if you actually have significant damage, seriously worn tires, and deep scratches, you should get them repaired before your return the car, or you’ll have to pay for those repairs after you return the car.

Excessive Mileage
Car leasing agreements specify the maximum average annual mileage you're allowed without paying a penalty. The most common mileage limit is 15,000 miles per year, although 10,000 or 12,000 miles are also used.
Make sure that when you lease you select the limit that best fits your driving needs because the penalty at lease-end for exceeding the limit can be expensive, typically in the range of $0.10-$0.25 per mile. (Some lease agreements set the penalty at as high as $.40 cents per mile and higher.)

Early Termination
Terminating an auto leasing contract early can be very expensive and should be avoided if at all possible. Many lease agreements won't even let you terminate the agreement until you've leased for a certain amount of time – usually 12 months. After that time there are provisions for terminating but it can be very expensive. If you think there's a possibility that you will not be able to complete your lease term agreement, you probably shouldn’t enter a car leasing agreement.

Destroyed or Stolen Vehicle
Having your leased vehicle totally destroyed or stolen is a form of early termination and, unless you have gap protection, you are exposed to the same penalties and payments as described earlier. Gap protection, sometimes called gap insurance, covers any additional amount that you might owe after your insurance company pays off.
Gap coverage is included in most modern car leasing contracts. In others, it's offered as an option — for a fee — by many dealers. If your car leasing contract doesn't automatically provide gap coverage, and it isn't offered by your dealer, check with your auto insurance company or bank.

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