Taking on more than you can chew. minimum guaranteed future values and negative equity. gap and ppi insurance. mileage limits.
Defaulting on payments
The most dramatic pitfall with car leasing is finding that you can no longer meet the repayments, in which case the car could be repossessed. Realistic budgeting should help avoid this, but if unforseen circumstances arise, you should contact the finance company as soon as possible to explain the situation and discuss your options.
Exceeding the mileage limit
A common issue is over-running the mileage limits, which will incur financial penalties for every extra mile covered. avoid this by setting a realistic mileage limit at the start of the contract, and if you find it impossible to meet, contact the company to discuss adjusting your arrangement.
Wear and tear bills
Damage and excessive wear and tear will also lead to big bills when you return the car. keep it in good condition and check it carefully before you hand it back, giving yourself time to tackle any issues.
As well as your monthly repayments, you’ll need to budget for comprehensive insurance cover, because the car does not belong to you while you are leasing it.
You may also want to consider payment protection insurance (ppi) which will cover your repayments for a limited time if you fall ill or lose your job. Check carefully to see if this cover is suitable – it won’t cover you if you’re self-employed, for example.
Guaranteed asset protection (gap) insurance is also worth consideration. This will cover any shortfall should the car be written off and the insurance payout doesn't match the outstanding finance shortfall.
If your car depreciates faster than expected, you could find yourself owing more in repayments than the car is worth – this is negative equity.