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FRB Vehicle Leasing Consumer Guide

FRB: Vehicle Leasing: Consumer Guide

Federal Reserve Board



A Consumer Guide to Vehicle Leasing

     Keys to Vehicle Leasing

Under the federal Consumer Leasing Act, you, the consumer, have a right to information about the costs and terms of a vehicle lease. This information will help you compare lease offers and negotiate a lease that best fits your needs, budget, and driving patterns.

This consumer guide is for a closed-end lease, the most common type of vehicle lease. With a closed-end lease, you may return the vehicle at the end of the lease term, pay any end-of-lease costs, and walk away. The sample leasing form shows the types of information the dealer or leasing company must give you before you sign a lease. "Leasing language" gives definitions of terms associated with vehicle leasing.


Leasing is different from buying.
Here's how . . .
Ownership Early terminatiion Mileage
Up-front costs Car return Excess wear
Monthly payments Future value End of term

Ownership
LEASING: You do not own the vehicle. You get to use it but must return it at the end of the lease unless you choose to buy it. BUYING: You own the vehicle and get to keep it at the end of the financing term.
Up-front costs
LEASING: Up-front costs may include the first month's payment, a refundable security deposit, a capitalized cost reduction (like a down payment), taxes, registration and other fees, and other charges. BUYING: Up-front costs include the cash price or a down payment, taxes, registration and other fees, and other charges.
Monthly payments
LEASING: Monthly lease payments are usually lower than monthly loan payments because you are paying only for the vehicle's depreciation during the lease term, plus rent charges (like interest), taxes, and fees. BUYING: Monthly loan payments are usually higher than monthly lease payments because you are paying for the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees.
Early termination
LEASING: You are responsible for any early termination charges if you end the lease early. BUYING: You are responsible for any pay-off amount if you end the loan early.
Vehicle return
LEASING: You may return the vehicle at lease end, pay any end-of-lease costs, and “walk away.” BUYING: You may have to sell or trade the vehicle when you decide you want a different vehicle.
Future value
LEASING: The lessor has the risk of the future market value of the vehicle. BUYING: You have the risk of the vehicle's market value when you trade or sell it.
Mileage
LEASING: Most leases limit the number of miles you may drive (often 12,000-15,000 per year). You can negotiate a higher mileage limit and pay a higher monthly payment. You will likely have to pay charges for exceeding those limits if you return the vehicle. BUYING: You may drive as many miles as you want, but higher mileage will lower the vehicle's trade-in or resale value.
Excess wear
LEASING: Most leases limit wear to the vehicle during the lease term. You will likely have to pay extra charges for exceeding those limits if you return the vehicle. BUYING: There are no limits or charges for excessive wear to the vehicle, but excessive wear will lower the vehicle's trade-in or resale value.
End of term
LEASING: At the end of the lease (typically 2-4 years), you may have a new payment either to finance the purchase of the existing vehicle or to lease another vehicle. BUYING: At the end of the loan term (typically 4-6 years), you have no further loan payments.


Consider
beginning, middle, and end-of-lease costs

At the beginning of the lease, you may have to pay your first monthly payment; a refundable security deposit or your last monthly payment; other fees for licenses, registration, and title; a capitalized cost reduction (like a down payment); an acquisition fee (also called a processing or assignment fee); freight or destination charges; and state or local taxes.

During the lease, you will have to pay your monthly payment; any additional taxes not included in the payment such as sales, use, and personal property taxes; insurance premiums; ongoing maintenance costs; and any fees for late payment. You'll also have to pay for safety and emissions inspections and any traffic tickets. If you end your lease early, you may have to pay substantial early termination charges.

At the end of the lease, if you don't buy the vehicle, you may have to pay a disposition fee and charges for excess miles and excess wear.


You can compare different lease offers
and negotiate some terms.
Consider . . .

Ask for alternatives to advertised specials and other lease offerings.


Know your rights and responsibilities

When you lease a vehicle, you have the right to

You may be responsible for


For more information . . .

Contact your dealer, manufacturer, leasing company, or financial institution for more information.

The federal Consumer Leasing Act and some state laws may provide you with additional consumer rights not covered in your lease agreement. For information on these laws, contact your state's consumer protection agency or Attorney General's office. You also can contact

Division of Consumer & Community Affairs
Mail Stop 800
Federal Reserve Board
Washington, DC 20551
or
Consumer Response Center
Federal Trade Commission
6th and Pennsylvania Ave., N.W.
Washington, DC 20580



"Keys to Vehicle Leasing" brochure

A brochure containing some of the information included at this vehicle leasing site
is available from:
Publications Services, MS-127
Board of Governors of the Federal Reserve System
Washington, DC 20551
Telephone: (202) 452-3244

The following agencies and organizations cooperated in preparing this information:

American Advertising Federation
American Automobile Manufacturers Association
American Financial Services Association and the AFSA Education Foundation
Arizona Attorney General
Association of Consumer Vehicle Lessors
Association of International Automobile Manufacturers
Consumer Action
Consumer Bankers Association
Cooperative Extension System
Federal Reserve System
Federal Trade Commission
Florida Attorney General
National Automobile Dealers Association
National Vehicle Leasing Association


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