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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
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