1. You ll get sized up when you walk into the dealership.

The recent credit crunch didn t just limit consumers from signing up for credit cards and getting a mortgage it also limited car-leasing options. The lack of liquidity for car leases peaked in April 2009 when Chrysler filed for bankruptcy protection and then its lending arm Chrysler Financial stopped doing business. But now leasing is picking up again. Eleven percent of mainstream (non-luxury) cars sold in December were leased, up from a low of 8% in May 2009, according to the Automotive Lease Guide.

The first mistake most consumers make when it comes to leasing isn t with the car leasing company but with the dealership. When consumers enter a dealership they re quick to answer a salesman when he asks if they re planning to buy or lease a car. Instead, consumers should focus on negotiating the price of the car they re interested in first, says Ashly Knapp, head analyst at AutoAdvisor.com, a Seattle-based car research service. As soon as you give away that you re leasing, prices will freeze up on the car, he says. You should negotiate your car price as if you re going to pay for it with cash out of your own pocket and then you bring that over to the lease.

And, don t tell the salesman how much you re willing to spend each month on a lease payment since that will create a floor for negotiating, which yis difficult to go under.

2. Never mind all our talk about monthly payments.

A common pitch for leasing is that you ll end up with fairly low monthly payments. Try to tune it out no matter what the salesperson might tell you, some of the most important things to think about when investigating a lease are a vehicle s price, it s likely value at the lease s end, and the additional fees you ll incur when you sign up.

Every lease starts with a sale. The dealer sells the car to a finance company, also known as a leasing company. In return for your monthly payments, the leasing company lets you use the car for a fixed time, and when that time is up, you return the car. Your monthly payments cover the sale price plus finance charges and taxes.

And there are additional fees, like an acquisition or bank fee. This is one of the fees that may shock a few people, says Matt Traylen, chief economist at the Automotive Lease Guide. He says it s a one-time payment of around $500 that a person leasing is required to pay when they sign the lease. Typically, you ll also have to make two months worth of payments: One applies as the first month payment and the other as a security deposit. And when a consumer returns their car at the end of the lease period, they could be charged a disposition fee of around $250 to $450 if they decide not to buy the car. This is a fee that can be negotiated, says Traylen.

3. You probably don t know what we re talking about.

Auto leasing is tricky, and it s made even more confusing with terms like residual value, money factor, capitalized cost, and capitalized cost reduction. The less you understand the terminology, the more susceptible you are to accepting a bad deal. So to help you figure out what you re agreeing to, here s a glossary of the most important terms you ll need to know to negotiate effectively.

The money factor is used to figure out the interest rate on a car s lease. Multiply that number by 2,400 to get the interest rate. So, with a .003 money factor, the interest rate is 7.2%. The residual value is the estimated value of the vehicle at the end of the lease term. Typically, you can purchase the vehicle at its residual value when the lease is up. (The industry s bible for residual values is the Automotive Lease Guide s Residual Percentage Guide; the figures can be on the low end and finance companies use this as a guide for setting prices.) Capitalized cost is the total amount that you re financing, including the negotiated price of the car, all its options, fees and taxes; it should be under the manufacturer s suggested retail price (MSRP).

Finally, capitalized cost reduction is the amount of money you give to the dealer upfront, like a down payment, which is usually negotiable. Consumers should focus on getting a contract with the smallest money down and the lowest interest rate. As a consumer, why do you want to put anything down? says Traylen. You re essentially paying up some of the risk; the finance company would love for you to put the money down [so] if something goes wrong with the deal and they have to, say, repo the car they [still] have the money.

4. Leasing a lemon will leave a sour taste in your mouth.

In every state there are lemon laws designed to protect consumers from the worst-case scenario a car that s fundamentally unfixable. But what happens when you lease an automobile that turns out to be just that? While you ll be covered in most states, you may not have this protection in others, including Alabama, New Mexico, Nevada, Alaska, South Dakota and Colorado, says Carol Roberts, the executive director of the International Association of Lemon Law Administrators. In these states, lemon laws are not expressly extended to lessees, and protection may depend on the specifics of given lease agreements and warranties.

Before you sign any leasing contract, find out if your state s lemon laws apply to leased vehicles by contacting your state attorney general s office, bureau of consumer affairs or department of transportation. Also, read your warranty thoroughly, and see if the manufacturer s warranty covers you and not just the leasing company.

5. A wipeout could really total your finances.

It s bad enough having your car stolen or wrecked. But if you re driving a leased car, the pain can be more excruciating because lessors will usually treat it as a form of early termination. Your leasing company will demand the payoff on the lease even if you ve had the car for a few months, says Scott Simmonds, an insurance consultant in Saco, Maine, who s a fan of leasing. While your insurance company should pay the leasing company the car s market value, the amount insurance will cover could be lower than what you owe on the lease financing.

The solution is gap insurance (also referred to as lease gap or loan gap), which covers the difference if your leased car is totaled or stolen so you don t have to. It ll also pay if you re upside down on your loan, meaning the value of the car is less than the amount you owe, says Simmonds who doesn t sell insurance. Most finance companies provide their own gap insurance in the contract, either by including it as part of the monthly payment or by charging a modest premium. If you re working with a small independent leasing company, make sure to ask about it.

It s silly not to have gap insurance in a world of carjacks and accidents, says James Bragg, CEO of Fighting Chance, a national information service for new vehicle shoppers. It s a pretty expensive mistake to make. It s especially important for an expensive car; otherwise the gap is usually around $2,000, says Simmonds, and that s when consumers should ask if paying $300 a year for the life of the lease is worth it.

6. Keep your car close to home or else.

Think you can drive wherever you want? A provision in many leasing contracts restricts the places you can drive. Some forbid you from going out of state or out of the country, and most specify that you can only do so for a limited period of time and to specified places, says Randall McCathren, president of BLC Associates, a Nashville-based consulting firm to the car leasing industry.

In standard industry lease agreements is a restriction saying that the lessee cannot take the car outside the state where first titled or registered for more than 30 days without the lessor s written consent or outside the U.S., except for less than 30 days in Canada. A Ford Credit spokesperson says: This language not only protects the interests of the lessor as the owner of the lease vehicle, but it also reduces the risk of loss or penalty to the person leasing the vehicle. And she says it helps ensure that the driver has the appropriate insurance coverage, registration and titling requirements if they move the car.

If you violate these conditions, you may be considered in default, which sometimes means you ll owe the difference between the balance on the lease and the amount the company can get for the car at auction. However, for national leasing companies the purpose of the provision is to get notice of the garaging location of the vehicle since that s where they ll have to remit sales and property taxes, says McCathren.

There may be even more restrictions if your leasing company is a local independent because they re unlikely to be registered in other states, especially those far from them, he says.

7. You call it an odometer; we call it a cash register.

Before you lease a car, know how many miles you drive a year. With a lease, you can typically choose from 10,000, 12,000 or 15,000 miles per year. With a common lease period being 36 months, that means you have to stay under 30,000, 36,000 or 45,000 miles, respectively, says Knapp. The lower that limit, the lower the depreciation of the lease and hence the lower the monthly payment.

But if you surpass the mileage limit, you ll have to pay extra at least 25 cents per additional mile, says Knapp. This is an issue consumers should negotiate before they sign the lease. Also, if you know approximately how many miles you ll put on the car per year, say this before the contract is written up. While you ll end up with larger monthly lease payments, it ll be comparatively cheaper than paying for hundreds of additional miles at the end.

8. Your car s not in good shape unless we say so.

Leasing contracts require you to return your car in good shape. But your definition of good shape may not match your leasing company s. A month before you re ready to turn in the car, ask the leasing company to inspect it for wear and tear. If there are any dings, dents or chips get them fixed ahead of time rather than have the dealer charge you for them later.

It s usually cheaper to get the repairs done on your own watch; if the car has a few minor dents, take it to a dent pulling service where you ll pay a couple hundred dollars to get them fixed; otherwise, the dealer could charge you for full body shop work, says Knapp.

Some car companies have a stipulation in the lease contract that they can charge you for repairs up to six weeks after the date you drop off the car, he says. Take pictures of all sides of the car and the windows before you leave. Knapp says he has clients who were billed for a broken windshield weeks after they returned their car, and they had photos from that day to prove that the windshield was fine. And, find out if your leasing company has built a damage allowance within your contract; few do it, but it can range from $1,200 to $1,500, he says.

9. The best time to lease a car isn t so obvious.

You may think the most expensive time to lease a new car is at the beginning of the model year when vehicles have just hit the showroom. But that could actually be when you ll get the best deal. Here s why: A number of manufacturers hike their prices three or four times annually, according to vehicle pricing experts at Kelley Blue Book.

For example, according to KBB, the 2010 BMW 528i sedan s launch MSRP was $45,800 and now it s $45,950; the 2010 Chevy Tahoe LS two-wheel drive had a launch invoice of $34,484 and now it s $34,670; and the 2010 Ford Flex SE four-wheel drive had a launch MSRP of $28,550 and is now up $400 to $28,950. The higher the price, the more expensive your lease will likely be.

10. Our purchase option could be a rip-off.

One way to avoid shelling out money for exceeding your mileage limit or for dents on the car would be if you decide to buy the car at the end of the lease. At this point, you ll be expected to pay the difference between the car s current value and the total lease payment obligation.

Still, this process can be ripe with pitfalls. In all my years of studying leasing, every time I see the purchase option at the end of the lease it s a bad deal because I can go out there and buy the same car often with less miles for less money, says Knapp. He says that one of his clients was interested in buying his Infiniti Q45 at the end of the lease period, but they ended up finding the same car model with 10,000 fewer miles for at least $3,000 less than what he was being offered to buy his car.