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Leasing: Is It For You?
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| The Definition of "Leasing" |
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| Updated |
Mar 17, 2005 19:41:50 |
| Rating |
 146 ( 16 +10.95% ) |
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Description:
It's difficult to shop for a new car and not be seduced by that magic statement "zero down" and the low monthly payments currently on two- or three-year leases. In fact, leasing is an increasingly popular option over paying cash or financing a new car. Recent statistics show that about 30% of all cars driven off the lot are leased--and when it comes to expensive luxury cars--almost 60% are leased. It can be great, but we want to help you understand when leasing is right, and when it's not.
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Will Leasing Work For Me?
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Crucial Differences Between Leasing and Buying
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Checklist of Leasing Tips
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Leasing Terms - A Quick Reference
The Definition of "Leasing"
When you lease, you are basically paying for the use of the car. Lease payments are meant to apply to the cost of that vehicle's depreciation over the time you drive it, rather than toward the car's purchase price. The "lessee" has responsibilities to maintain the car but has no ownership or equity in the vehicle. When the lease is up you can either opt to purchase the vehicle, or merely return it.
Simple, yes, but leasing isn't for everyone. There are many things to consider in determining whether leasing in right for you. Below are some of the basic aspects of leasing vs. buying to help you decide.
Will Leasing Work For Me?
Leasing may be an attractive option if:
You are comfortable with a stream of car payments, year in and year out.
You are prepared to keep the car in basically the same shape as when it left the dealer. You won't be able to
change or customize it to suit your whims.
You tend to get bored with a car after a couple of years. If you like getting a brand-new car all the time, leasing
can be your most reasonable and cost-effective option.
You may have a legitimate business reason for leasing--and are able to deduct your lease payments from your taxes.
You don't plan on driving more than 12,000 - 15,000 miles each year. Leasing arrangements have annual mileage limits, and
if that makes you uncomfortable, and you don't want to pay the penalties, leasing may not work for you. Mileage limitations
are really the bottom line, we feel, when deciding about leasing. You need to realistically consider your typical annual
mileage-if it's honestly over 15,000 you may end up paying additional mileage charges, and should probably purchase the vehicle.
Use our Lease or Purchase Calculator to help you decide!
Crucial Differences Between Leasing and Buying
The side-by-side comparisons below help differentiate leasing from purchasing. Read them carefully before deciding which option is best for you. Don't forget to use the Lease or Purchase Calculator.
 Â
LeasingÂ
BuyingÂ
TermsÂ
Lease terms are usually between 2 to 4 years.
Loan contracts are usually signed for 4 to 6 years.
Type of vehicleÂ
The shorter term and lower monthly payment of a lease agreement allow you to drive a new and more expensive vehicle every 2 to 4 years.
The higher monthly payments usually make driving a new or expensive vehicle every 2 to 4 years unpractical.
OwnershipÂ
You don't own the vehicle. Unless you decide to purchase it, you must return it at the end of the lease.
You own the vehicle.
Up-front costsÂ
Up-front costs usually include first month's payment, a security deposit, a down payment, taxes, registration fees among others.
However, if you take into consideration the total cost of the vehicle and the monthly payment that you want,
the sum is usually less than the up-front costs of purchasing.
Up-front costs usually include down payment, taxes, registration fees, and other minor charges.
This amount is usually larger when compared to lease, especially if you want an expensive vehicle with low to moderate monthly payment.
Monthly paymentsÂ
Monthly payments are calculated based on the vehicle's depreciation during the lease term, rent charges, taxes, and other fees.
They are usually lower than monthly loan payments.
Monthly loan payments are based on the total amount of purchase price, plus interest charges, taxes and other fees.
They are usually higher than monthly lease payments.
InsuranceÂ
The insurance premium is usually higher.
The insurance premium is usually lower.
Early terminationÂ
You are responsible for any early termination charges stipulated on the lease contract. Make sure that you understand them.
You are responsible for paying off the loan.
Vehicle returnÂ
You need to return the vehicle at the end of the lease terms. There might be some end-of-lease charges.
You keep the car. What you do with the vehicle then is entirely up to you.
Future valueÂ
The lessor bears the risk of the future market value of the vehicle.
If you decide to sell or trade in the vehicle at the end of the loan terms, the risk of its future value is yours.
MaintenanceÂ
You are responsible for the maintenance of the vehicle during the lease term.
You are responsible for the maintenance of the vehicle.
MileageÂ
Most leases impose a limite on the number of miles you may drive. You can negotiate a higher limit with the lessor.
However, bear in mind that it might increase the lease amount, and consequently the monthly payment. There will most
likely be extra charges if the actual mileages exceed the limit set on the contract when you return the vehicle.
No limit. The vehicle is yours. Drive it as you please. However, the higher the mileage, the lower the resale or trade-in value of your vehicle.
Excess wearÂ
Like mileage, most leases limit the wear of the vehicle during the lease term. You might need to pay extra charges when you return the vehicle, if
the lessor determines that the wear is over the limit set by the contract.
Like mileage, there is no limit on the wear of the vehicle. Again, the higher the wear, the lower the resale or trade-in value of your vehicle.
End of termÂ
At the end of lease, you can decide either to: simply return the vehicle, return the vehicle and lease another one,
or purchase it for whatever the residual value of the vehicle is.
If you decide to lease another one, you need to
negotiate a new contract, if you decide to purchase it, you may apply for a loan.
At the end of the loan term, the vehicle is yours to keep. |
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