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Leasing a Car: The Drawbacks of a Zero-Down Lease

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author photo by Doug DeMuro May 2014

If you're interested in leasing a car, you might be tempted by zero-down leases, which are offered by many automakers to entice deal-hungry shoppers. These leases require nothing down, meaning you can get in a new car and drive off without paying a penny. So, what's the catch? We have a few items that you might want to consider before you sign the papers.

Less Now, More Later

When you lease a car, you're essentially paying the depreciation on the vehicle during the period that you own it. Think of it this way: If you pay $300 per month for 36 months, you'll spend nearly $11,000 over the life of the lease. When you return the car to the dealer, it'll likely be worth around $11,000 less than it was when you leased it, minus a little extra for profit to the dealer and the automaker.

As a result, a zero-down offer usually just means that you'll end up spending more in monthly payments to account for the depreciation. An automaker and a dealer are unlikely to lose money on a car, so this type of deal means that they'll get the dollar amount they need one way or another.

As an example, imagine that the $300-per-month lease requires $2,000 down. Now, imagine that an automaker is offering a 36-month lease with nothing down and payments from $359 per month on the same car. For many shoppers, the second deal seems more appealing, since it requires nothing down and only $60 extra per month. But it's a trick: The latter deal ends up being more expensive, since the automaker simply rolled the down payment into the monthly payment -- and maybe tacked on a little extra on top.

Of course, your situation may be different, but we strongly recommend running the numbers before signing a lease, as the zero-down deal might end up being more expensive than one that requires a down payment.

Just an Offer

Another drawback to the zero-down lease deal: It may not exist. Or if it does exist, it might be tremendously difficult to get.

This is primarily because zero-down lease deals are typically only offered to buyers with excellent credit. For shoppers with bad or even average credit, automakers often want to see money up front before they'll approve a lease deal.

As a result, zero-down lease deals are sometimes just a flashy way to get you through the door. If you arrive and learn that you don't qualify for a zero-down lease, don't be afraid to walk away before a dealer tries to talk you into a more expensive lease with a down payment.

Not Zero Down?

Our last potential drawback to leasing a car with nothing down is that a zero-down lease may actually require something down. Yes, that's right: Even though an automaker refers to a lease as "zero-down," they may not be able to deliver a vehicle with nothing down at signing.

Here's what we mean: Many dealers require a documentation fee, which they'll often require at signing -- even if you're leasing a car, and even if your deal is supposed to be zero-down. If it's not the doc fee you have to pay, sometimes there will be other fees, including a title fee or sales tax, which some states collect at the beginning of a lease. In other words: Even if you qualify for a zero-down deal, don't go to the car dealer empty-handed.

Don't Bother?

We're certainly not saying that you shouldn't bother with a zero-down lease. On the contrary, we happen to think that it's an excellent way for many shoppers to get a new car. But we think you should be aware of some potential drawbacks before you eagerly rush to a dealer when you see a zero-down lease deal advertised on TV.

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
Leasing a Car: The Drawbacks of a Zero-Down Lease - Autotrader