Leasing A Car 

Leasing has become a very popular financing method for obtaining a new car in the last ten years. A continuing increase of car prices and changes of the tax laws in the 1980's eliminated the interest deductions on car loans creating leasing to become a popular alternative. Nearly one-third of all new cars are leased. The following information will be helpful in determining what leasing is and what benefits can be expected from leasing an automobile. 

What is leasing?

Leasing is a method of paying for the use of a car over a specific period of time. You will pay only for that part of the car's original value that you use, which is usually the amount that the car depreciates during your lease period. A leasee will work out the price of the car with the dealer who then pays for the car at the price you both agree on. The dealer, who has now become the agent for the leasing company (usually a subsidiary of the car manufacturer), works out the terms of the lease agreement with the leasee. By signing the contract, a leasee agrees to make the monthly lease payments, keep insurance, pay any and all taxes and fees and take care of the vehicle in accordance with any restrictions within the lease. 

What are lease payments?

Lease payments have two parts:

·        The depreciation charge which is paid to the leasing company for the depreciation in value of the vehicle being driven.

·        The finance charge, which is the interest on the total dollar value of the car, held by the leasing company while the vehicle is being driven. 

What types of leases are available?

·        Closed-End Leases or a Walk Away Lease are usually used by individuals and allows the leasee to return the vehicle at the end of the lease period with no responsibility.

·        Open-End Leases are usually utilized by businesses or for commercial purposes and entails the leasee paying the difference between the end value of the lease and the actual market value of the vehicle 

What are the costs associated with leasing a car?

·        First Payment - this is made at the time of signing the lease agreement and you will be charged sales tax on this amount.

·        Security Deposit - this will be refunded to you at the end of the lease.

·        Acquisition Fee - this is included in your monthly payments and is charged by the leasing company.

·        Disposition Fee - this is due at the end of the lease and is applied towards the cost of the leasing company disposing of the vehicle (may be as high as $500.)

·        Registration, License, Tag and Title Fees – the same charges applied as if purchasing a vehicle outright.

·        Gap Insurance - this is optional and covers what the insurance company would not cover if vehicle is lost or stolen. A lost or stolen leased vehicle is treated as a terminated lease and a leasee is then responsible for all applicable costs. 

Who should lease a Car?

·        Individuals who drive less than 12,000 to 15,000 miles per year. Most dealerships incur pay per mile penalty for every mile you drive over the agreed mileage agreement. The per mile cost is usually between .10 and .20 cents per mile. However, this price can be negotiated at the time of signing the lease agreement.

·        Individuals who are likely to change their cars every two to three years. 

What are the advantages of leasing?

·        More expensive vehicle for less money. The monthly cost of leasing is usually 40% less than the cost of buying the same vehicle.

·        Little or no down payment

·        Sales tax paid over term of lease

·        A lease that is timed along with the manufacturer's warranty can mean less maintenance worries for the leasee. 

Understanding your lease agreement

Lease agreement formats vary upon lease agreements, dealership and states. The Federal Consumer Leasing Act, Regulation M, however, states that the following must be included in all lease agreements.

·        Capitalized cost

·        Capitalized cost reduction

·        Residual value

·        Lease charges

·        Monthly amounts

·        All other charges that will be included in the cost of the lease