“Sign and drive” ads and commercials
sound too good to be true: For no down payment or any money due at all when you
sign up for a new car lease, you can drive away in a new car.
“You literally can come in with no money and drive away,” says
Scott Hall, executive vice president of Swapalease.
With a good credit score of 675 or better, only a signature is
needed to drive away, Hall says. But before signing on the dotted line, even if
you have excellent credit, you should know what you’re getting into.
What is ‘sign and drive?
Whether a typical lease or a sign and drive lease, leasing a car
requires paying for a car that you won’t eventually own. You’ll make lower
monthly payments with a lease than you would by purchasing the vehicle, but
you’ll have to return the car at the end of the contract — usually three to
Unlike a regular lease, where a down payment of $3,000 or so will
include a security deposit, registration and monthly payment, and will be part
of the down payment on the car, a sign and drive lease doesn’t require any
money down — up to a point. You may have to pay taxes, title and registration
fees with a sign and lease deal.
A sign and drive deal could also have a higher monthly payment
than a regular lease deal, as a way for the dealer to move the costs of no
money down into it. Having a regular lease with a $3,000 or so down payment can
lower the monthly payments. Interest rates on the loan, however, aren’t
affected by the type of lease.
Some car makers may use leases to move cars if they have an
abundance of inventory. The leasing company may even subsidize the sign and
drive lease deals with rebates to the auto dealer that the public doesn’t see,
When can this be a good
Not putting money down is the major benefit of a sign and lease,
but there are others.
If you don’t drive more than 12,000 miles per year, which is a
common mileage cap in many leases, then a lease can make sense.
A primary benefit of a lease, supporters say, is being able to
drive a new vehicle more often. And since most leases are for three years, the
vehicles are covered under the manufacturer’s warranty, Hall says.
Like updating a phone, drivers will also get updated car features
and can take advantage of new technology by leasing a new car every few years.
When is it a bad deal?
Leasing is more expensive than buying, so if you plan on keeping
the car for at least three years and can afford the down payment, then buying
is your best option, says Mitchell Weiss, an adjunct professor of
finance at the University of Hartford.
Even if you plan on leasing a car, you should walk into the
dealership like you’re going to buy the car and negotiate the best price, Weiss
recommends. Lease prices are negotiable, just as the price is when buying a
“You want to negotiate that price of the car down,” he says. “You
want to tell them that you’re willing to pay cash and then you can drive that
Like shopping for any other commodity, the best comeback when a
car dealer haggles over price is to leave and shop elsewhere, Weiss says.
“It all comes down to price,” he says. “Are they getting a
premium out of a sign and drive?”
Paying for diminished
Most cars aren’t assets that gain value over time. This is
especially true with leased cars.
“When you lease, you are effectively financing a percentage of
the car’s value over the lease term, but paying interest on the full value of
the car,” says Jonathan Duong, a certified financial planner at Wealth
At the end of the lease, you either return the vehicle or pay its
residual value, making it similar to a loan with a balloon payment, Duong says.
With a higher residual value, the monthly payment will be lower and reflect
The math behind a lease can be complex. Just don’t let a sign and
drive deal fog up the fine print.