Auto Leasing Basics

There’s a shiny new Pontiac G6 parked in your next-door
neighbor’s driveway Standing proudly next to it is a gleaming
new Jeep Grand Cherokee This is the second time in four years
that your neighbor and his wife have driven home on brand-new
sets of wheels Unless you live right next to state lottery
winners or an organized crime family, there could be a more
plausible explanation for your neighbors’ seemingly good
fortune: they might be leasing
What is automotive leasing?
Automobile leasing is paying for the use of the car, rather than
paying for the car itself Monthly lease payments are based on
the projected cost of the vehicle’s depreciation over the period
covered by the lease For instance, suppose you lease a car
valued at $20,000 Over the course of a three-year lease term,
let’s suppose the car depreciates in value to $10,500 This
depreciated value, also called the vehicle’s residual value, is
subtracted from the car’s initial value The difference between
the two values, in this case $9,500, is what you will be paying
for the duration of the lease Leases typically last for two
four years, with leases on high-end vehicles and luxury cars
sometimes stretching up to five years When your lease expires,
you have the option of either buying the vehicle or moving on to
a new lease
What are the benefits and drawbacks of leasing?
Monthly lease payments are generally lower than monthly loan
payments on the same vehicle, assuming that the lease and the
loan have the same duration Leasing lets you drive a new
vehicle every few years depending on the length of your lease
Additionally, leasing allows you to drive a more expensive and
feature-packed vehicle for the same monthly payment you’d be
making to buy a lower-priced model Your leased vehicle comes
with a warranty while it’s in your use Furthermore, automobile
leasing saves you the trouble of selling your used car or
trading it in when you’re ready to buy a new one Moreover, you
may also write off a portion of your lease payments as a
business expense if you have a legitimate business use for the
vehicle Ask a qualified accountant or tax professional about
the eligibility requirements for the tax write-off
While leasing offers several benefits, it also has its share of
drawbacks One disadvantage is that vehicles on lease programs
have annual mileage limits, usually 15,000 miles per year If
you exceed the mileage limit, you will be charged a
predetermined amount for every excess mile Another drawback to
leasing is the slew of fees and charges that you will have to
pay at the beginning and end of the lease Among these
additional fees are the lease acquisition fee, the lease
disposal fee, and the lease finance charge There are also extra
charges for extended warranties, insurance coverage, and other
items Furthermore, if you terminate the lease before the lease
period is over, you will be assessed an early termination
penalty Another disadvantage to leasing is that you will have
to return the vehicle when the lease expires, unless you choose
to purchase the vehicle at lease-end

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