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Why a Sign-and-Drive Lease Is Never a Free Ride

sign and drive lease

If you’ve shopped around for a car in recent years, you’ve probably heard the words “sign and drive” before. The definition seems pretty straightforward: you sign on some dotted line then drive away in your dream car. But is the concept of sign and drive really that simple? Here’s a look at the steps and requirements to qualify for a sign-and-drive lease, as well as tips to decide if this is the best auto financing choice for your situation.

Read: 36 Cars You Can Finance for $300 or Less

Sign and Drive: What Does It Really Mean?

You are watching your favorite show on TV when there’s a commercial break and you see the car of your dreams zooming along a lone desert road, showcasing some of the most amazing angles ever featured on a vehicle. Before the commercial ends, you realize this is the car you have to have — especially since the automaker is promoting a great sign-and-drive deal.

But what exactly is a sign-and-drive deal? It is a leasing option offered by automakers. Leasing a car means you agree to pay for the use of a vehicle that you won’t eventually own, and in return you make smaller monthly payments than a person who has purchased the same vehicle.

However, the difference between a standard lease and a sign-and-drive leasing agreement is that the latter allows you to drive away with no money down. Or does it?

Related: Is a Rent-to-Own Car a Good Deal if You Have Bad Credit?

What You Should Know About Sign-and-Drive Leases

Taking on a sign-and-drive lease can seem to be too good to be true. Who wouldn’t want to show up at a car dealership, get a great deal, sign up for a car that requires no money down, then drive away in an amazing vehicle? But if you’re thinking of running to your nearest dealership, keep in mind that the process isn’t that cut and dry. As with any other circumstance that requires you to spend your money, it’s critical that you read the fine print on a sign-and-drive lease.

You’ll need good credit to qualify for a sign-and-drive lease

The first thing you’ll discover is that unless you have an impressive credit score, it’s going to be difficult for you to even qualify for this type of deal. Don’t believe it? The next time you find a sign-and-drive deal, look for the asterisk then scroll down to the fine print. Most likely, it will include phrases to the effect of “for well-qualified buyers” or “not all buyers will qualify.” This is due to the fact that auto dealers aren’t willing to bet on a person with poor credit making car lease payments without a security deposit or down payment to lower their risk.

Monthly payments might induce sticker shock

Another thing to note is that sign-and-drive lease deals make up the difference you’re not paying up front in your monthly payment. For instance, a no-money-down contract could result in $280 in monthly payments, but if you were to pay $2,600 at lease signing, your monthly payment could be reduced to $199 per month

And like most lease specials, a sign-and-drive usually requires that you settle for a specific lease term (27 months, 35 months, etc.) and abide by specific mileage guidelines (like driving fewer than 12,000 miles per year to avoid higher fees).

There’s no down payment, but there are other upfront costs

Also, it’s important to know that most sign-and drive-deals require taxes, as well as title and registration fees, usually charged at the time of signing. In other words, you’re probably not driving away from a dealership without paying a dime. Not to mention that the deals are usually advertised for base-level vehicles, meaning the feature-packed car you saw on the commercial will probably not be included in the deal at the low advertised price.

Read: How 5 Personal Finance Experts Financed Their First Cars

Is a Sign-and-Drive Lease Right for You?

Getting your hands on the best lease deals available is a matter of doing your homework. You might want a sign-and-drive deal, or you could be fine with a leasing option that requires a down payment. Either way, it’s important that you make no decisions in haste.

For instance, you may find a sign-and-drive deal that offers all of the perks you’re looking for but has a higher monthly payment than you can fit into your budget. Or you might love a standard lease deal with a down payment included but need more miles per year included, which could hike the price higher than you wanted to pay. Considering your financial situation as well as your driving needs and habits can help you evaluate different leasing offers to find the best fit for you.

Also, it’s important that you consider whether you want to lease a car at all. It’s no secret that leasing isn’t for everyone. While leasing has grown in popularity in recent years, data from Edmunds shows that just 27 percent of American drivers choose a lease over purchasing a car, reports The New York Times.

The reason some people prefer to buy is obvious: They don’t have to give their vehicles back once the term ends. But for a person who prefers to trade cars in every few years, more money can be saved by making smaller monthly payments through a car lease.

So before deciding whether to accept the terms of a sign-and-drive lease (assuming you qualify), or any type of leasing option, it’s important to look at your personal circumstances to determine how long you plan to keep the car, whether you want to resell eventually, and how much you plan to spend in the short- and long-term. Making these determinations can help you decide whether leasing under any condition is right for you.

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