Leasing an automobile is similar to renting. You pay a fee for the use of a car. You don't own it and must return it when your contracted time period is over. You are responsible for any damages to the car until you return it. On the surface, it doesn't sound like a great deal. Yet, according to Cars.com, in 2008 a full 20 percent of car buyers declined car ownership and instead opted to lease their cars.
Advantages
A clear advantage of an auto lease is no down payment. That doesn't mean you pay nothing to lease a car. Typically, before driving away the lessee is responsible for the first month's lease payment, an acquisition or bank fee, and registration and licensing fees. Monthly payments are usually lower for leased cars. Sales taxes are lower since lessees are charged only for the value of the monthly payments. Repair costs are minimal with leased cars since lease periods are often just 2 or 3 years, well within the vehicle warranty.
Disadvantages
You don't own the car when your lease period is over. The car is still owned by the dealership. Car mileage is limited on leased vehicles. Lessees face penalties for driving more than the allotted miles. Dealerships charge additional penalties for excessive wear and tear on leased cars. When lessees turn in cars at the end of a lease period, they could conceivably be responsible for thousands of dollars in extra charges.
Capitalized Cost Reduction
When leasing a vehicle, lessees must negotiate the cost of the car, just as car buyers do. The agreed upon price is known as the capitalized cost. Although some dealers may suggest that lease costs are non-negotiable, according to Lease Guide, this is simply not true. Manufacturer rebates, purchase incentives and financing specials are also applicable to leased vehicles. These discounts result in a capitalized cost reduction, thereby reducing your monthly payments.
Residual Value
The value of a leased car when it is returned, taking into account depreciation, is termed the residual value. At the beginning of a lease, dealers estimate a car's residual value at the end of the lease; the higher that estimate, the lower the lease payment. This is why lease terms are normally so short. If your car is worth less than its estimated residual value, you must pay the difference at the end of the lease contract. If you plan to purchase the car at the end of a lease, opt for a car with a lower residual value.
Money Factor
Money factor is similar to the interest rate charged on a car loan. Dealers multiply the money factor by 2400 to get the interest rate for a lease. To lower lease payments, it is critical to find a dealer that discloses his lease money factor and also offers the lowest money factor.
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