At Vehicle Leasing
Leasing a vehicle
is a lot like renting an apartment. You pay a monthly fee to use
it but you dont own it and arent making payments
toward ownership. You have no equity stake in the deal. A leased
vehicle remains the property of the lessor the company that
issued the lease.
As with an
apartment rental contract, a lease will have a fixed term
typically two or three years. Youre obliged to make what amount
to monthly rent payments for the length of the contract in order
to continue using the vehicle.
As is often
the case with renting an apartment, youll likely have to put
down some cash, too, as security deposit at the lease
inception. This money will be used to pay to cover any damage to
the vehicle things like body damage, stains on the seats,
etc. when you return it at the end of the lease.
Also like a
rental contract for an apartment, you may be able to get out of
the lease before the end of the contract but typically there
will be penalties, such as the forfeiture of your security deposit.
So, why lease?
The big advantage
with leasing is flexibility. You arent making a long-term
commitment as is the case with buying.
lease contract runs for 2–3 years. The typical new car loan, on
the other hand, is 5–6 years. When the lease period is up, you can
simply bring the car back and walk away. Or you can buy it if you
like (by paying off the remaining balance called the residual
value which youll negotiate in advance at the
time of lease inception).
plus: Since you are only renting the car, your total cash outlay
should be much less. While you may have to come up with the security
deposit, as well an initial payment, your monthly payment will be
less than if you bought because its not based on the full
purchase price (plus interest) as it would be if you bought the
vehicle. A lease payment will be based on a portion of the cars
value not the whole MSRP sticker price.
youll have more money in your pocket to spend on other things.
Or, if you prefer, you can probably afford to drive a more expensive
car when you lease since the monthly payments will be comparatively
lower. This is one of the biggest single attractions of leasing
for many people. A car (or truck) that might cost you say $500-$600
per month to buy could be $100-$200 per month less to lease.
thing about leasing is that youre always driving a new or
nearly new vehicle and you dont have to worry about
the potentially expensive repair and/or maintenance problems that
inevitably crop up as a car ages and is no longer covered by the
warranty. The leased car will typically be under factory warranty
for the duration of the lease and many lease contracts even
have provisos that cover routine maintenance, such as oil changes,
also have tax advantages for you but this is something youll
have to ask your accountant about. In the past, leases were entered
into almost exclusively by people who used their vehicle for business
purposes, such a realtors, who could claim deductions not available
to those who purchased them outright.
There are downsides
to leasing, of course.
For one, since
youre only making what amount to rental payments each month,
you wont have anything tangible to show for your money at
the end of the lease. If you spend, say, $10,000 on lease payments
(about $400 per month) over two years, that $10,000 is gone
forever. Every penny you put toward the lease contract is now in
the hands of the leasing company. And the car will be, too. Youll
have to either sign up for a new lease (and come up with the cash
to do that), buy a new or used car (and come up with the cash for
A person who
buys his vehicle, on the other hand, has the comfort of knowing
that one day, his vehicle will be paid for and
assuming it is still in good shape at that point itll
be free transportation until it breaks down or the owner
decides to sell it.
a person who owns his car has equity (value) in the car or truck.
Even though it will depreciate with each passing year, so long as
its still serviceable transportation, it will always be worth
something. That something can be used to help raise money to pay
for a new one when the time comes or for some other need.
who leases must start from scratch every time every 2–3 years.
also the mileage issue. If you lease, your contract will typically
stipulate the maximum number of miles youre allowed before
the end of the lease. If you exceed the figure, it can get very
expensive. Per-mile charges over the stated maximum are often exorbitant.
Be extremely careful about this. Dont guess what your annual
mileage is. Know. And figure accordingly.
Also: If you
lease, youre not allowed to modify the vehicle and
if you get into a fender bender, the car must be repaired on your
who owns his car, meanwhile, can drive it as much as he wants, and
do pretty much whatever he feels like with it, too. He can swap
out the stereo, add different wheels and tires, change the exhaust
system whatever. Do this with a leased car and youll
have to pay whatever if takes to put the car back the way it was.
single biggest potential pratfall with leasing, though, is that
the process is more complex than buying and people who dont
understand often-inscrutable financial language can find themselves
on the short end of the stick. Always closely read and be
sure you understand every proviso of the lease contract before
That same advice
goes for a normal sales contract, but with a lease deal, the non-expert
is much more vulnerable.
So, take your
time and be sure the deals right for you.
with permission from the
National Motorists Association.
[send him mail] is an
automotive columnist and author of Automotive
Atrocities and Road Hogs (2011). Visit his
© 2011 Eric Peters
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