7 Questions to Ask Before You Lease a New Car

If you're an expert when it comes to leasing cars, you probably don't have to worry about getting a bad deal. But if you don't know a lot about car leasing, you might not know what questions to ask the dealer to ensure you're getting a good one.

Don't fret.

While there are many pieces to a lease agreement, there are just a few elements that determine if a lease is good or not. If you ask the right questions, you can more accurately evaluate a lease deal. Here are seven queries that will head you in the right direction.

1. Are there any lease specials?

Most carmakers periodically offer discounted leases to boost sales, and these specials could provide a shortcut to substantial savings for you. However, check the fine print of the lease ad to see if there are any additional expenses. The quoted monthly payment will almost never include sales tax or registration fees. Some advertised leases also require a high drive-off fee.

These lease offers are often only available to current leaseholders. Others will only be available to people with the highest credit scores. Check Edmunds' Incentives and Rebates section for current offers.

2. What is the car's residual value?

The residual value is an estimate of how much the vehicle will be worth at the end of a lease. It is a key component of a good lease and is usually expressed as a percentage of the vehicle's manufacturer's suggested retail price (MSRP).

Here's why the residual value is important: The higher the residual value is, the lower your lease payment will be. When you lease a car, you are paying for the difference between the selling price and the residual amount spread out over the life of the lease. The higher the residual amount, the smaller that difference will be.

For example, if you were to lease a $30,000 car with a 60 percent residual for three years, that vehicle will be worth about $18,000 at the end of the 36-month lease (60 percent of $30,000 is $18,000). That means your lease would be based on the $12,000 difference between the $30,000 price and $18,000 residual. Divide that $12,000 by 36 months and you get a $333 monthly payment (before taxes, interest charges and fees).

If this same vehicle had a 55 percent residual ($16,500), your lease would be based on the difference between $30,000 and $16,500, which is $13,500. Divide this $13,500 difference over 36 months, and the base monthly payment bumps up to $375.

If the residual value was 50 percent, the monthly payment would jump to $417. A 45 percent residual would net you a payment of close to $460.

You can always ask dealers for the residual value of the car you are considering. They will probably give you a percentage between about 45 and 60 percent.

3. What is the money factor?

A "money factor" is lease jargon for what most people think of as an interest rate. Money factors usually look something like this: 0.00125. Just as with a traditional interest rate, the lower the number the better.

To convert the money factor back into an interest rate, multiply it by 2,400. So if the money factor is 0.00125, multiply it by 2,400, and you'll see that it's 3 percent.

Be sure to ask what the money factor is that's being applied to your lease and convert it to an interest rate. It's an easy way to make sure you're getting a rate appropriate for your credit score.

4. How many miles does the lease include?

Sometimes you'll hear about a great lease deal but then will learn (by asking or by reading the fine print) that the lease only includes 7,500 or 10,000 miles a year. Limited miles might be fine for someone who rarely drives, but most people will need a minimum of 12,000 miles a year. Some drivers will require more.

Before signing on the dotted line, make sure the lease you're considering will allow for enough miles. These lower-mileage leases can be tweaked to allow for more miles, but they will increase the monthly payment.

5. How much money is due up front?

Always ask this question if you see a newspaper or TV ad offering a low monthly lease payment. More often than not, that low monthly payment comes with a not-so-low upfront cost.

You also want to ask the dealer this question if you are offered a "killer" lease deal.

Drive-off fees — which are your upfront out-of-pocket costs — are a combination of fees and a down payment. The effect of a bigger down payment is lower monthly payments, just like a traditional loan.

Ideally, though, you want to pay as little as possible up front. Unlike a traditional loan, initiating a lease with a big chunk of cash may not save you much money in the long run.

In fact, putting down a hefty chunk out of pocket to start a lease can actually hurt you. Should your leased vehicle be totaled or stolen, there is no guarantee that the down payment you've made will be returned to your insurance settlement.

Car leasing pros often choose just to pay the first month's payment and registration fees to start the lease. The other charges are rolled into the monthly payment. Because the money saved in upfront out-of-pocket costs is spread out over the length of the lease, the monthly payment increases. However, the overall total cost of the lease remains mostly unchanged.

6. What fees does the lease have?

Shoppers looking to improve their lease contracts might have success if they ask for some fees to be reduced or removed from lease contracts.Nearly all contracts have acquisition and disposition fees that usually can't be negotiated out, but you can often get the dealer to waive the security deposit.

Fee amounts differ from brand to brand and from bank to bank. Even if some fees are nonnegotiable, it is better to know what you're paying rather than being surprised at the end of the lease by a disposition charge you weren't expecting.

7. What will this vehicle cost me over the life of the lease?

Multiply the total amount of your potential monthly payment, including taxes and fees, by the number of months in your lease. Take that number and add in your total drive-off costs. The total is the complete amount you'll spend on the lease.

While part of the magic of leasing is a low monthly payment, for most people, the amount paid over the lease will never lead to ownership of that vehicle, unless you buy the lease out at the end of the term.

Are you willing to pay that amount for something you will likely give back in three years? If the answer is no, it might be worth looking at other vehicles to lease.

The Q&A That Reveals the Deal

As you get answers to these questions, you will get a much clearer picture of the value of the lease you are considering. You will also demonstrate to the dealer that you've done your research and have a grasp of the essential elements of a lease. Consider the answers carefully and you will have a lease that will save you money and provide an enjoyable driving experience.