Auto leasing, rather than buying a car is an attractive option, especially for those who plan to change their cars at fixed intervals of three years or so and for professionals who are able to take advantage of the tax and financial benefits. Auto leasing is a complex issue with many variations on costs and terms. If you have decided that leasing a car is the way for you to go, here are a few tips on what to look out for so as to ensure that you get the best possible deal.
Decide on the auto leasing option that is best for you. There are two basic types - open ended and closed ended.
• In a closed ended lease you return the car to the dealer at the end of the lease period, pay any costs due, including those for extra mileage or excess wear and tear or damages, and walk away. Since the residual value of the car is fixed in advance, the dealer takes the risk of not being able to get what he expects for the car.
• Open ended auto leasing is less common. In this case the residual value of the car at the end of the lease period is estimated but not fixed. Here also you pay the same costs due at the end of the lease as with a closed ended lease, but if the dealer feels that current market conditions have reduced the residual value of the car, you will be required to pay the difference between the estimated value and the current market value. While the lease payments for this kind of lease are generally lower than with a closed ended lease, because the dealer is covered from the residual value risk, disputes on what the residual value is or should be often leads to disputes and other hassles.
• A variation on both these leases is Balloon Auto Leasing. In this case you start out with low payments and the amount increases at regular intervals at fixed times. This is designed to allow people to lease a better car than they can currently afford on the expectation of higher income in the future and the ability to pay higher lease amounts. This is a dangerous option because people tend to budget, based on the initial payments and when the amount increases, they are hit hard.
You should always shop around because terms and conditions vary, depending on the dealer and the leasing company. The auto leasing agreement is between you and the leasing company, not the dealer, who is only representing the leasing company. Read the lease agreement in detail, especially the seemingly unimportant clauses at the end of the agreement. Ask for clarifications on anything you are doubtful about and if the responses you receive do not seem clear and logical, ask for them in writing.
Decide on the auto leasing option that is best for you. There are two basic types - open ended and closed ended.
• In a closed ended lease you return the car to the dealer at the end of the lease period, pay any costs due, including those for extra mileage or excess wear and tear or damages, and walk away. Since the residual value of the car is fixed in advance, the dealer takes the risk of not being able to get what he expects for the car.
• Open ended auto leasing is less common. In this case the residual value of the car at the end of the lease period is estimated but not fixed. Here also you pay the same costs due at the end of the lease as with a closed ended lease, but if the dealer feels that current market conditions have reduced the residual value of the car, you will be required to pay the difference between the estimated value and the current market value. While the lease payments for this kind of lease are generally lower than with a closed ended lease, because the dealer is covered from the residual value risk, disputes on what the residual value is or should be often leads to disputes and other hassles.
• A variation on both these leases is Balloon Auto Leasing. In this case you start out with low payments and the amount increases at regular intervals at fixed times. This is designed to allow people to lease a better car than they can currently afford on the expectation of higher income in the future and the ability to pay higher lease amounts. This is a dangerous option because people tend to budget, based on the initial payments and when the amount increases, they are hit hard.
You should always shop around because terms and conditions vary, depending on the dealer and the leasing company. The auto leasing agreement is between you and the leasing company, not the dealer, who is only representing the leasing company. Read the lease agreement in detail, especially the seemingly unimportant clauses at the end of the agreement. Ask for clarifications on anything you are doubtful about and if the responses you receive do not seem clear and logical, ask for them in writing.
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