9 car rental pitfalls you should avoid


If you are considering leasing a car, what seems like a good idea can come with caveats and pitfalls that make the cons outweigh the pros. Just because you’re renting a car instead of owning it doesn’t mean you should be less vigilant about what you get into. Unlike owning a car, which you could sell if you wish, leasing leaves you with a legally binding agreement, and you will need to keep the car until the end of your term. Here are 9 traps you might fall into when renting a car:

9 pitfalls to avoid in car leasing

1. Potentially costly mileage restrictions

Most car rental contracts have a cap on the number of kilometers you can travel with the car in any given year. American drivers average about 13,500 miles per year, according to the Federal Highway Administration.

Some car rental contracts, especially those touting low monthly payments, include annual mileage caps of 10,000 miles or less, says Matt DeLorenzo, senior editor at Kelley Blue Book. And depending on the type of vehicle you drive, expect to pay a mileage penalty ranging from 10 cents to 25 cents per mile if you go over your annual cap. The higher the price of the car, the higher the penalty. If your penalty is 25 cents per mile and you exceed the 3,000 mile cap in one year, you are looking at a hefty $ 750 per year in additional costs.

To take with: If you plan to borrow a rented car, estimate how many kilometers you drive on average per year. If there has been a change in the way you drive, for example, you are now working from home and driving less, or you have a new job that comes with a longer commute, take that into account.

2. Early termination fees

If you want to terminate your lease earlier, you might have to pay a pretty penny to get out of your contract. It depends on the terms of your lease. You may have to pay the difference between the amount of the depreciation of the car and what you have already paid for it. In some cases, these fees can amount to several thousand dollars.

Suppose you are leasing a car for $ 40,000. After three years, you have paid $ 18,000. However, the car depreciated by $ 21,000. If this is the case, you may have to pay the difference between what you have already paid ($ 18,000) and the depreciated amount of the car ($ 21,000), which is $ 3,000.
The early termination fee may also include taxes and a vehicle disposal costs, which helps offset the cost to the lender of selling the vehicle. And remember, you’ll also be responsible for paying late fees, parking tickets, and any unpaid monthly payments.

To take with: Read the fine print on early termination clauses, recommends DeLorenzo. “Find out exactly how much you’ll have to pay if your lease doesn’t end,” he says.

3. Low residual value

The residual value is the value of the car at the end of your lease. Let’s say the lender estimates that the $ 30,000 car you lease today will be worth $ 15,000 three years from now. Your monthly payments will be calculated to cover this loss in value of $ 15,000, so a 36 month lease equals monthly payments of $ 416.67, excluding interest, taxes and fees.

To take with: The lower the residual value of a car, the higher your monthly payments will be. Keep this in mind and calculate how much extra you would pay to cover a car with low residual value.

4. An advertised price that requires a huge down payment

When you see a monthly rental payment advertised as less than $ 200, make sure you do your homework and know what you’re getting yourself into, DeLorenzo says. Often, these low prices equate to massive down payments. You’ll want to check how much you’re being asked to contribute to qualify for such low monthly payments.

“An upfront charge of $ 5,000 on a four-year lease effectively adds over $ 100 to the advertised monthly payment,” says DeLorenzo.

To take with: There is usually a catch if a lease comes with low monthly payments: a large down payment.

5. The monthly payments for the purchase vs the leasing

Some dealers might try to entice you to lease by comparing the monthly payments for the purchase versus the lease, and how much your payments would be lower if you opted for the lease. Remember: When you buy a car, you own it at the end of your term of the loan. With leasing, you have to return the car.

To take with: Don’t be fooled when a dealership tries to compare apples to oranges and tells you how financially wise it is to rent a car.

6. Ignore the cost of the car

Just because you’re renting doesn’t mean you don’t have to worry about the price of the car. This always matters, because what you pay to rent it out largely depends on the cost of the vehicle and its depreciation rate.

To take with: The price and value of your car is important when leasing.

7. Fees at the start and end of the lease

Before signing a lease, make sure you are familiar with all the fees. These may include:

  • Acquisition fee. Also known as administrative or bank fees, these are one-time fees that lenders charge to enter into the lease. The amount can range from around $ 400 to $ 900.
  • Sales taxes and license fees. This might not be included in your monthly payment, so be sure to read the fine print.
  • Purchase price. At the end of your lease, you will have the option of purchasing the car instead of returning it to the lender.
  • End of lease fees. If you decide to return the car, you will need to pay the lease end fee, also known as the disposal fee. This may include vehicle inspection, cleaning and overhaul, storage, freight charges, and administrative costs.
  • Wear costs. You could be charged for lost equipment, or if the car suffers wear and tear beyond what is covered in the rental agreement. “Check out the specific language on what constitutes ‘normal wear and tear’ at the end of the lease, and what your responsibility is for repairs or maintenance at the end of the lease,” says DeLorenzo.

To take with: The cost of renting a car goes beyond the monthly payment. Consider all costs, including those that could result from breaking the terms of the lease.

8. A longer term to obtain a lower monthly payment

Let’s say you talk to the lender to get your monthly payment. They come back, letting you know, lo and behold, they may have reduced your payments by extending the lease. The truth is, you are not saving money. Although a longer lease could mean that you will pay less each month, you will pay more interest during the lease.

To take with: Don’t be fooled by a lower monthly payment coupled with a longer rental period. The average lease term is two to four years. If the lender suggests extending this term, you will pay more in the long run.

9. The money factor

While there is no APR when it comes to car rental, there is a finance charge. These are known as the “monetary factor”. The money factor is a lot like an interest rate, and it determines how much you will pay in finance charges. As you might expect, the higher the money factor, the more you will pay.

Unlike interest rates, the monetary factor is expressed in decimal form. To find out what your finance charge is as a percentage, multiply the money factor by 2400. So if your money factor is 0.00250, that makes 6%.
Takeaway: This is not something a lender divulges. When shopping for a car rental, ask what the money factor is.

Next steps

Here’s what you can do to protect yourself from one of these car rental traps:

  • Know your needs. When deciding if a car rental is right for you, consider how many kilometers you drive in a given year, how much you can realistically afford, and how renting a car would fit your needs. preferences, lifestyle and financial goals.
  • Check your credit. Examining your credit report before you receive any offers can help you gain more leverage in negotiating the terms you want.
  • Compare the prices. To get the best rates, talk to different lenders about their terms based on your credit.
  • Negotiate what you can. While there are some things that you cannot negotiate, such as sales charge and residual value, you can potentially negotiate the disposition charge or the redemption price.
  • Read the fine print. There are hidden fees and limitations to your lease that might not be revealed when you shop. Before signing on the dotted line, be sure to look into the smallest details.

By understanding how renting a car works and being aware of the costs, you can avoid common rental pitfalls.

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