Support our educational content for free when you purchase through links on our site. Learn more
Looking to lease a new car, but not sure how much it will cost you per month? Our expert team at Car Leases™ is here to guide you through the process and provide you with all the information you need. In this comprehensive guide, we'll cover everything from how car leases work to hidden costs you should be aware of. By the end of this article, you'll have a clear idea of what to expect when it comes to leasing a car and how much you should budget for your monthly payments.
How Car Leases Work
Before we dive into the topic of monthly payments, let's first understand how car leases work. When you lease a car, you are essentially renting it for a set period, typically two to three years. During this time, you'll be responsible for making monthly payments to the lessor, usually a car dealership or financial institution.
The monthly lease payments are calculated based on several factors, including the vehicle's price, the length of the lease term, the residual value (the estimated value of the car at the end of the lease term), and the money factor (similar to an interest rate).
At the end of the lease term, you'll have the option to either return the car or buy it for its residual value. Keep in mind that there may be additional fees and charges at the end of the lease, such as excess mileage or wear and tear charges.
The Costs to Expect When Leasing a Car
When considering leasing a car, it's important to understand all the costs involved. Here are some of the most common costs you can expect:
Some car lease agreements may require a down payment, which is a lump sum paid upfront to lower the overall lease cost. However, not all lease agreements require a down payment. Those that do may offer the option to also put the amount towards reducing monthly payments.
Monthly lease payments vary based on the vehicle's price, the lease term, and the money factor. In general, lease payments are lower than loan payments for the same vehicle over the same term, but there are some factors that can contribute to higher monthly payments.
An acquisition fee is a one-time charge to initiate your lease. The fee covers the administrative costs of creating and processing the lease agreement.
The money factor is the equivalent of an interest rate on a car lease. The lower the money factor, the lower your monthly payments.
When returning a leased vehicle, there may be additional fees incurred, including a disposition fee and transportation fees.
Extra Mileage Charges
When you lease a car, there will likely be a mileage limit. If you exceed the mileage limit, you'll be charged extra fees per mile.
Excess Wear-and-Tear Fees
When turning in a leased vehicle, there may be charges for any excess wear and tear, such as scratches or dents.
Is It Better to Lease or Finance a Car?
The decision to lease or finance ultimately depends on your personal financial situation and driving habits. Here are some key factors to consider when making the decision:
In general, lease payments are lower than loan payments for the same vehicle over the same term. However, if you plan to keep the car for a long time or drive it for more than the lease term, financing may be the better option in the long run.
Leasing may require lower upfront costs than financing, as there is often no down payment involved.
Lease agreements typically come with mileage limitations. If you plan to drive more than the mileage limit, financing may be the better option.
When leasing a car, you do not own the vehicle, but are essentially renting it. When financing, you own the vehicle after you make all the payments.
How Much Should I Spend Monthly on a Car Lease?
When it comes to how much you should spend on a car lease per month, it's important to first consider your budget. As a general rule of thumb, you should aim to spend no more than 10% of your monthly income on your car lease payment.
For example, if you earn $5,000 per month, your car lease payment should be no more than $500. Keep in mind that this includes all associated costs, including insurance and maintenance.
Is It Cheaper to Finance or Lease a Car?
Choosing between financing and leasing ultimately depends on your personal financial situation and driving habits. In general, lease payments are lower than loan payments for the same vehicle over the same term. However, if you plan to keep the car for a long time or drive it for more than the lease term, financing may be the better option in the long run.
How Much Should I Save to Lease a Car?
When leasing a car, it's important to budget for all associated costs, including the down payment and monthly payments. The amount you should save will depend on several factors, including the vehicle's price, the length of the lease term, and the money factor.
As a general rule of thumb, you should aim to save enough for a down payment of at least 20% of the vehicle's cost. You should also budget for monthly payments, insurance, and maintenance costs.
Quick Tips and Facts
- It's important to carefully read and understand the lease agreement before signing.
- Negotiate the lease terms, including the monthly payments and upfront costs.
- Consider purchasing gap insurance to cover the difference between the car's value and the remaining lease payments in case of theft or accident.
The Bottom Line
Leasing a car can be a great option if you prefer to drive a new car every few years without having to worry about the hassle of selling or trading in your vehicle. However, it's important to understand all the costs involved and budget appropriately.
If you're considering leasing a car, our expert team at Car Leases™ recommends consulting with a reputable dealership or financial institution to ensure you're getting the best deal for your personal situation. Happy leasing!
- How Does Leasing a Car Work? (n.d.). Retrieved September 22, 2023, from https://www.edmunds.com/car-leasing/quick-guide-to-leasing-a-new-car.html
- Lease vs. Buy: The Benefits of Leasing a Car – Lynk Payments. (2021, September 17). Retrieved September 22, 2023, from
- Stone, T. (2021, September 17). How much should you spend on a car? (Vehicle affordability). Retrieved September 22, 2023, from https://www.finder.com/car-loan-affordability
- Taylor, E. (2021, September 15). Should You Buy or Lease Your Next Car? Retrieved September 22, 2023, from https://www.fmsbonds.com/wp-content/uploads/2015/07/52421pau0.pdf