How to Read a Car Lease Contract

If you understand how to read a car lease contract, you will be in a better position to negotiate with car dealers and protect yourself from hidden charges. While car lease contracts can vary slightly from company to company, there are some standard elements you should look for.

Difficulty: Moderately Easy

Instructions

1. Look for the area entitled "Federal Consumer Leasing Act Disclosures" first. This is where the most important details of your lease are outlined, including how much you have to pay at signing, what your monthly payment will be, how many payments you have to make, how the payments are calculated, rules for early termination and other relevant information.

2. Read the section about wear and tear on a leased car. Car leases usually require a car to be returned at the end of the contract with no more than normal wear and tear. You can get an explanation of what constitutes normal wear and tear from the dealer.

3. Review the mileage allowance section on the contract. Leasing contracts include a specification for how much average annual mileage you are allowed without being charge additional fees. Ten thousand, 12,000 and 15,000 are the most common mileage allowances, and overage fees typically range from 10 to 25 cents per mile.

4. Read the conditions for early terminations. If you have to get out of your lease contract before it expires, most lease contracts will detail strict restrictions and penalties. You should never sign a lease with the expectation that you might need to terminate it early.

5. Look for gap protection or gap insurance in the contract to protect you from having to pay early termination penalties caused by theft or accident. This is typically included in contracts, but it may be offered for an additional fee.

6. Check out the amount of insurance coverage you are required to have according to the lease contract. Most leasing companies require you to carry more than the legal minimum.

Tips & Warnings

• Do your own calculations to determine what the monthly payments should be rather than relying on the dealership to do the calculations. An erroneous calculation can lock you into a monthly payment that's too high. There are numerous lease calculators online that can help you do the calculations quickly.
• Once you sign a lease contract it is set in stone. You don't get a grace period to cancel the agreement, so you must painstakingly review the contract to make sure there are no errors.