What's the Deal With Auto Leasing?
by KEONI LENI
Until relatively recently your choice of auto Finance options was pretty limited. It is certainly different now. You can find hundreds of auto financing deals on the market. Auto leasing is quickly emerging as the most effective route to driving a new auto.
Auto leases are very like auto rental agreements. The biggest difference is the contract lasts much longer.
With lease agreements you never actually own the auto. The whole concept is that you are renting the use of the auto for the duration of the lease contract.
Lease deals are set up so that the lease company can extract the maximum value at the end of the deal. They own the vehicle so they can sell it at the end. The cost to them is effectively the difference between the original purchase price and the eventual selling price.
So, suppose you find a auto for $20,000 purchase price. The lease company does some sums and tells you that if you take out a 3 year deal with a 12,000 mile per annum mileage limit they will guarantee a residual value of $8,000. The net cost to the auto leasing company is $12,000 plus administration charges (setting up the deal and selling the auto at the end) and finance charges.
As you are only paying finance charges on part of the value of the auto ($12,000 costs in the above example) your monthly payments are lower. Even better, as the auto lease company owns the auto you don't have to pay a large deposit.
So instead of financing $30,000 your lease effectively finances only $12,000. Your monthly lease payments are going to be much lower than those of a $30,000 auto loan.
At the end of lease you have 3 options: 1. You can purchase the vehicle for the pre-defined residual value 2. Part exchange the auto and use the extra value as the deposit on your next lease vehicle. 3 You can hand the auto back and walk away.
Auto lease companies claim that most people trade in and use the difference to pay their next deposit. Many auto leasers do this time after time going from one lease deal to the next. They like driving new autos and they don't autoe that they never own the auto at the end of the deal.
There are downsides to auto leasing. In the long run it will always be more expensive than buying through an auto loan.
Auto leasing deals are not for everyone. To manage their risks auto leasing companies put tight constraints on the deals they offer. Leases are for fixed period and it is practically impossible to exit a lease early. Calculation of residual values is highly mileage dependent so you may find any excess mileage payments are expensive. Nevertheless, if you want to drive a new auto, can guarantee to keep the vehicle for the full term of the lease, and can stick to the mileage limits in your agreement, leasing can be a great choice. Save hundreds of dollars on your next new auto. Auto leasing lets you drive a new car for less than you might think. For help and information on obtaining the auto loan or auto lease that is right for you visit http://www.autoloan.jklblog.com
