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Car LeasesLeasing a car is sort of like renting a car- you pay an upfront lease fee and registration/license fee, then you make a monthly payment for as long as your lease period lasts. At the end of the lease (loan), you have an option to either buy the car for the "residual value" or give up the car and walk away from the transaction. All leases for cars come with specific mileage allowances. If you drive more than the annual mileage allowance, you have to pay extra charge when your lease is terminated (10 cents a mile or more). If you decide to buy the car at the end of the lease, you pay the residual value - the different in the value of the car vs. what you have paid in lease payments.
Advantages of Car Leasing - lease vs. buyWhat are the advantages of leasing a car vs. buying? Normally, since there is no down payment, the initial fees to lease a car may be less than buying a car. Also, since the lease is only for a specific period (3 years or 5 years for example) and you don't end the car at the end of the lease, your monthly payments are less under a lease than they would be if you were actually buying the car. Another advantage of leasing instead of buying is that you get a new car every few years when you turn over your old car and begin a new lease.Disadvantages of Car Leasing - Why should I buy instead of lease?Buying a car usually means a little more upfront out of pocket expenses, in terms of the downpayment. And your monthly car payment will usually be more than the equivalent lease payment would be. So why buy instead of lease? It's like owning a home instead of renting. For starters, the car is YOURS. You can add a stereo, paint it, whatever. You can't do that with a leased car. You can drive 50,000 miles a year if you want. With a leased car, you are usually limited to 10 or 12K miles per year, otherwise you pay huge per mile charges at the end of your lease as penalties. With a lease, you are essentially promising not to drive much, and you will pay if you do. When you buy a car, at the end of your payment plan, you own the car - you might drive it for 3 or 4 or 5 more years until it dies, with no additional monthly payments. Imagine saving all those monthly payments you will save, and use them to buy your next car. Three years at $400 per month means you have $14,400 to use as a down payment on your next car. If you lease, at the end of the lease the car is gone and you have to either buy it (mayne $10K residual payment) or go out and lease another car - and those monthly lease payments start up immediately, never giving you months or years to save that money instead.Getting out of a leaseHow do I get out of a car lease? After signing up for a lease, some people find they can't afford it or wish they could have a different car. Some leasing companies allow assumptions - you find someone to assume the lease, and they take over your payments and whatever residual commitments you have (mileage fees, etc.). Call your leasing company to see if this is an option. You can also sell the car yourself. First you have to find out the current lease buyout amount - you will have to pay that to the leasing company to gain the title of the car, then you can sell it to a third party. A final option is to return the car to the lessor and walk away, which will show up negatively on your credit report.Buying your car at the end of a leaseWhen the normal lease term is over, you can buy the car by paying the residual value. Sometimes the residual value is negotiable though, so figure out the wholesale value in advance and offer something less than that - most leasing companies would prefer to sell you the car to avoid the hassle of having to find a new buyer through a dealer or an auction process.
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