When you lease a car, you are basically renting the car on a long term, month to month basis and at the end of the lease you either turn the car in or buy it at a pre-determined cost or residual value.
There are two types of leases;
The biggest advantage of leasing for most people is that you pay less in the beginning than if you purchase. However in the long run, you might pay as much as 25 to 40% more unless you use the car for 50% business which can be written off under current tax laws.
- First; there is a closed end lease which means that at the end of the lease you turn the car in.
- Second; there is an open end lease which gives you the option of either buying the car at a pre-determined residual value or turning the car in if the car is not worth the residual value, however you are liable for the difference up to 3 monthly payments.
For a detailed discussion of leasing vs. financing, please go to our "Leasing Comparison" page, written by Gary C. Worthington, one of the foremost authorities on automotive leasing.
If you do lease, make sure you know the sale price or the "capitalized cost" of the car. This is important because most of the time the leased amount is not disclosed and can be "capped" at a price far above the MSRP(sticker price). And remember all leases have a mileage limit, if you drive beyond the mileage limit there are substantial penalties as high as 15 cents per mile.
Check the following points carefully before you lease:
And finally, remember a dealer can make more money leasing that on selling because the total selling price of the vehicle is usually not disclosed in a lease, and the complexity of the lease can give the seller other ways to make profit that you are not aware of.
- What is the cost of early termination.
- What are the late payment penalties.
- What are the standards on measuring wear and tear of the car.
- What is the yearly mileage limit or cap and what is the cost per mile if you go over.
- Make sure you know the total obligation and the exact monthly payment
- Never pay extra money down to get a lower lease rate.