Car leasing laws you should know

If leasing a vehicle is in your future, be aware that you’re entitled to certain legal protections. Leasing companies are bound by the Consumer Leasing Act (Regulation M), meaning they must tell you all of the terms and costs of the deal they are offering you. So be prepared to ask the right questions to ensure that your lessor follows legal regulations.

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An auto lease is a contract allowing you to rent a car for a specified amount of time. The lease agreement includes rules for your time with the car, such as mileage restrictions, the type of insurance you need to maintain and how much damage is acceptable.

For people who don’t drive much or who switch vehicles every few years, leasing could be a good alternative to buying.

What is an auto lease?

An auto lease is a contract that essentially allows you to rent a car for a specified amount of time. The lease agreement includes rules for your time with the car, such as mileage restrictions, the types of insurance you need to maintain and how much damage is acceptable.

You can sign up for a lease at most car dealerships. For people who don’t drive much or who don’t want to commit to one car for more than a few years, leasing could be a good alternative to buying.

What must be disclosed to you when you sign a lease?

Under the Consumer Leasing Act and the Truth in Lending Act, lessors must provide you with basic information about your lease. There are a few basic pieces of information to look for in your lease agreement to ensure that your lessor is following leasing laws.

• Total lease amount. Before you sign a lease, you must be given a detailed, written statement of everything you have to pay for and incidentals you may have to pay at the end of your lease period.
• Lease duration and payment due dates. The leasing company must tell you how many payments you have to make, how much each payment will be and when the payments are due.
• Extra fees. You must be told about any upfront costs, such as down payments, registration and security deposits, as well as how much you’ll pay if a payment is late. There may also be a mileage overage fee and a disposition fee if you decide not to purchase the vehicle.
• Lease-end requirements. The lessor must explain any circumstances under which it could terminate the lease. It should also explain what will happen if you decide to buy out the lease.
• Vehicle maintenance requirements. You must be told how wear and tear will be assessed when you return the vehicle and under what circumstances you’ll need to pay damages. The lessor should also tell you who is responsible for servicing the car.
• Insurance requirements. You must be given details about lease requirements, including whether your lessor requires a specific type or amount of car insurance.

Your lessor has to include these pieces of information, but there are other red flags in a lease agreement that, while legal, can significantly increase the cost of leasing a car. Read your agreement with care.

Car lease restrictions

Since you don’t technically own the vehicle, your lessor may restrict how your car is used. These include clauses against racing and ride shares as well as bigger restrictions like how much you can drive and where you have to go for maintenance.

Mileage

Leased vehicles typically allow you to drive anywhere from 12,000 to 15,000 miles a year. Miles can stack up quickly if you commute or take long road trips, and there will likely be a fee for every mile over the agreed-upon limit. This can be up to 50 cents for every additional mile, according to data from Consumer Reports. If you know you will be taking long trips or have a lengthy commute, negotiate a higher mileage limit. It will mean a higher monthly payment, but it should still be less expensive than paying mileage overage fees.

Regular maintenance

You will likely pay for regular maintenance and servicing. The owner’s manual should lay out when the vehicle needs to be seen by a mechanic based on odometer readings, but your lessor may have an additional schedule you need to follow.

You may also be required to visit official mechanics or service centers approved by your manufacturer or dealer. And if you don’t commit to regular upkeep, you may violate the expected wear-and-tear clause in your lease agreement.

Cancelation and lease-end sale

During your lease, you may be forbidden from subletting or lease swapping. And canceling your lease agreement is expensive. Be prepared to commit to the two or three years with the vehicle or paying thousands in fees. This is one of the bigger restrictions you’ll face, so consider it carefully when deciding on a leased vehicle.

At the end of the lease, you either return the vehicle or buy it. You lose the money you put into the vehicle if you choose not to purchase it at the end of the lease, and you may even owe money if the residual value has changed since you signed your contract.

Vehicle modification

Customizing or modifying your vehicle will most likely be against your lease agreement. This means no specialty paint jobs, but it also means you may not be allowed to change out equipment like speakers. If you want a custom car, a lease won’t be the best choice.

The bottom line

Leasing a vehicle can be a good financial investment, but make sure that you understand the ins and outs of leasing laws to get the best deal available. If your lessor tries to hide any terms of your lease or refuses to disclose things like your total payment amount and potential fees, it’s best to turn to a different dealership.