Auto Lease

What you need to know about auto leases

by Ali Koomen

Leasing a car is like renting an apartment. Just as you are not buying an apartment when you rent it, neither are you buying a car when you lease it. When renting an apartment (or leasing a car), a monthly fee is paid to the landlord (bank) which allows the use of the apartment (vehicle). When the term of the lease is finished, the renter must move out (turn the car in). And, as in an apartment rental where the place must be left in immaculate shape or face penalties, the same goes for leasing a car.

There are several benefits to leasing that make it a great choice for many:

  • Drive a new car every thirty-six months and always have the latest technology.
  • Monthly taxes made on payments are tax deductible. Check with your tax advisor.
  • A vehicle on a 3 year lease is always under warranty- no unexpected repair bills.
  • It also generally costs less to start up a lease than to take out a loan, as most lenders will require 10-20% of the vehicle's price as a down payment. A lease will only require the first month's payment, first year license fee and perhaps a security deposit equal to one month's payment.

There are both short-term car leases as well as those that are longer in term, but the average length is three years. The payments on short term leases (two years or less) are very costly, considering how much the average vehicle depreciates in just the first two years. Long-term leases can end up costing more, as well, because once the warranty on a car has expired, the car's repairs are the total responsibility of the lessee.

When considering a lease, the most important factor is the average miles driven per year. Most contracts allow for 12,000 miles yearly. Driving just a hundred miles over the allotment each month will result in an overmileage fee of $250 to $700 at lease end, depending on the lease contract and overmileage charge, which is generally 7-20 cents per mile.

Any damage done to the vehicle above and beyond normal wear and tear will be the lessee's responsibility. Repairs must be made before turning the car in. Failure to do so will result in repair charges, as determined by the lender. Be well aware what the lender considers as "normal wear and tear" prior to signing the contract to avoid any unpleasant surprises.

Most lenders will require higher minimum insurance coverage on a leased vehicle, and this could end up costing several hundred dollars over the life of the car lease. Be sure to check with an insurance agent for an auto-lease quote.

Many banks will not consider lending on a used-car lease, although some may be found on higher-end vehicles or those that keep their value better than the average car.

Nowhere does the Latin phrase "caveat emptor" ("let the buyer beware") apply more than on an auto lease. There are some awesome automotive bargains to be had by leasing a vehicle. However, many people have lost hundreds-and sometimes thousands-of dollars because they did not realize what was involved in a new-car lease. Ask questions, read the contract carefully and don't sign if you don't understand.

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