Automobile leases

Consumers often misunderstand automobile leasing; they often consider it as cheap alternative for rent to own plans that are worked out by dealers. There are many people who would even consider leasing as a scam and advise other to stay away from leasing. Leasing has a number of advantages that are most of the times overseen. Leasing has been used since years in financing of businesses and buildings and other major buys. However leasing has been introduced lately in the automobile industry. This is because of the fact that there are many people who are still unaware of the leasing of automobiles.

Why has leasing gained popularity?

Leasing has slowly but steadily gained a lot of popularity. This is because people who could not afford buying an expensive vehicle can easily afford to do so. Besides this the most attractive thing about leasing is the low monthly payments. However it is important to look at other factors also before considering leasing, as these can be complicated in comparison to buying a new car.

When you have to make a decision between buying and leasing then you should consider your financial situation, your personal priorities. You should work out on facts whether ownership of the vehicle is more important that avoiding to pay down payment or low up-front costs. It is important to understand the difference between buying and leasing.

Difference between buying and leasing

When you buy a vehicle then you are supposed to pay for the whole amount irrespective of the fact the miles that you drive. You have to pay the down payment, the sales tax, and the interest rate on the loan etc. You are required to make your first payment a month after you have signed the contract.

On the other hand when you lease a vehicle then you pay only a part of the cost of the vehicle. This is the amount that you use when you are driving the vehicle. You have options like you would not have to pay the down payment, depending on the state in which you stay you are required to pay the sales tax only for the monthly payments. You are supposed to pay a financial rate called as the money factor, which is equivalent to the interest rate on the loan. You would also have to pay a lease fees and also a security deposit that is not to be paid when you buy a vehicle.

Payment for lease

Payments towards the lease are divided into two parts. One is the depreciation charge and the other is the finance charge. The depreciation part of the vehicle compensates for the value of the vehicle during the time of lease. The finance charge is the interest on the money the lease company has put in the car when you are driving it. In reality you are borrowing the money that the lease company had used to buy the vehicle. You repay the money during the lease term and the remaining amount you are required to pay at the end of the lease term when you either buy or return the automobile.

Effect of bad credit

As leases require small down payment and lower monthly payments it is good if you have a good credit score than it is required for a loan. this is because the lease company takes a higher risk to give out the lease. If you have been making your previous credit payments on time and do not have much debt then you can qualify for a lease easily. If not then you would have to pay a higher interest rate for the lease.
If you wish to take an automobile lease you would have to have a stable job and lifestyle. This is because if you wish to terminate the lease early then you would have to pay the remaining payments and the termination charges. Terminating the lease early is one of the major concerns that people have when taking lease.

Lease contracts for new automobiles limit the miles that the consumers can drive to 10,000-15,000 miles in a year. If you exceed the limit then you would be charged excess mileage at the end of the lease. If you know that you will be driving extra miles then you can inform the lease company at the time of signing up the lease contract. If you are thinking of returning the car at the end of the lease period then the leasing company requires the car to be in a good condition with not more than the normal wear and tear. In case there is more damage then you would have to pay the extra charges for the damages.

If you are interested in trendy cars or cars that change their style often then, the resale value of such cars also depreciates quickly. This would result in a lower residual lease value. This would mean that the monthly payments would be higher towards the lease. The advantage of taking a lease is that you can manage to drive a new car every 2-4 years as per the duration of the lease.

Leasing totally depends on your decision whether you are interested in taking a lease option or not. You should weigh all the pros and cons and analyze your financial situation and then take the decision whether owning a car is a good option for you or leasing it is better for you. You should keep all the conditions in mind and then decide on automobiles leases.

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