Car leasing has become as ubiquitous as fast food, with a barrage of newspaper, television and online ads proclaiming the low cost and advantages of signing on the dotted line. But leasing may not be more financially advantageous than buying, and consumers must take care to understand all key lease terms before closing the transaction. People often enter into leases to obtain a more expensive vehicle, but they must remain vigilant not to go over the allotted mileage, damage the vehicle or change their minds, as early terminations are typically expensive.
Lease Terms
Advertisements for vehicle leases may entice consumers with low prices, yet with annual mileage limits generally in the 10,000-to-12,000 range, consumers must determine how many miles they typically drive in a given year. Penalty fees await those who exceed those limits. Also, most car leases are for a period of 36 months, and that time frame may be less than ideal. If a consumer leases a new European coupe and his children about to enter grade school, he will be stuck with his choice when his family could need an SUV or minivan.
Special Deals
Automobile manufacturers frequently make monthly lease payments unrealistically low by pricing the car for an amount that leaves little, if any, profit, coupled with below-market interest rates. While that may initially sound attractive, the result is that the vehicle's "residual value," or market price, at the end of the contract is high. Drivers who want to keep their vehicles, or decide that it no longer makes sense to continue making lease payments, can be left with a steep buyout cost.
Down Payments
Down payments can be particularly risky. Once paid, the driver has no equity in the car. Also, in the event of an accident, an insurance settlement goes right to the lessor or finance company. Lessees should seek out deals that require little or no upfront costs.
Lease Terminations
If for any reason the lessee no longer wants the vehicle or cannot afford to make the payments, getting rid of the vehicle is more complicated than just trading it in or selling it. Consumers considering a lease should be certain that the contract permits them to transfer possession of the vehicle so that someone else can legally assume the lease's obligations.
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