Auto Lease Help

Buying a new vehicle is a complicated and expensive process. One of the biggest decisions you have to make as a buyer, aside from what type of car you want, is whether to buy or lease. Each option has its own advantages and drawbacks, but leasing can be difficult to understand without some prior information.

Function

A lease is essentially a long-term rental. You pay a monthly bill for use of a car over a lease term, which is usually around three years. During that time, you have an allotted annual mileage (often 12,000 or 15,000 miles) and keep possession of the vehicle until the end of the lease. When the lease is over, you may return the vehicle to the dealer or pay a buy-out, which is defined in your original lease agreement, and own the car outright.

Costs

The costs associated with leasing a vehicle are different from those that come with a purchase. The monthly payment on a lease is generally lower than the monthly payment to purchase the same car. Dealers may also offer lease deals with no down payment, which makes leasing possible for drivers who don't have enough money saved up to make a down payment to finance a vehicle purchase. However, when the lease term ends, you'll be responsible for a buy-out that usually exceeds the car's market value. If you choose not to buy, you may be responsible for a disposition fee, as well as fees for exceeding your allotted mileage or excessive wear and tear.

Benefits

One benefit of an auto lease is the chance to always drive a relatively new car. If you lease regularly, your vehicle will never be more than three years old, removing concerns over reliability and safety that accompany some older models. You'll also have a chance to try new vehicles without a long-term commitment; if you find one you especially like, you can buy it at the end of the lease term. Low monthly payments and the lack of a down payment make leases attractive to other drivers.

Considerations

When you lease a vehicle, you never have a chance to build equity in the car. This means that when you turn in your vehicle, you have nothing to show for your years of payments. Financing a new car gives you a vehicle that, once paid off, is yours to trade in, sell or keep driving without a monthly payment.

Lease buy-outs are generally priced above the market value of the car after three years of depreciation, which means you'd be better off surrendering the lease and buying a similar used model. However, if you exceed your annual mileage allotment, the fees may make it less costly to simply pay the buy-out. Consider your driving needs and mileage trends, especially before signing a lower-cost lease with a smaller mileage allotment.