Proponents of leasing will tell you that the big advantages of leasing include less money invested up front, lower monthly payments, and protection against excessive depreciation. The advantages to the auto manufacturers are many. They get to drop a ton of new cars at big discounts without really reducing the selling price and buy offering leases with subsidized residuals and reduced monthly payments. These factory subsidized leases, by the way, are the only type of lease you should even consider.
What type of person should consider a lease? In general, leases should only be considered by those who can take advantage of the tax benefits of writing off the vehicle for business expenses. The ideal candidate for leasing would be someone who needs to drive a late model vehicle in order to show a professional image and will be primarily using the vehicle for business. For people who need to drive a new car for business the fact of having to trade every two or three years is a plus.
Another issue that you have to look at to determine if a lease is right for you is to calculate the mileage you will drive annually. Most leases limit you to 10,000 to 12,000 miles per year. Some will go as high as 15,000 but if you drive more than this a lease may not be right for you. The penalties for going over the allowed mileage can be substantial.
Some dealers try to market leases to buyers that cannot afford to purchase a new car under a conventional financing arrangement. They appeal to the person's desire to drive a particular car and show them that by leasing they can afford it. If you do not fall into the category I mentioned previously, you would be better off buying a quality late model used vehicle with an extended warranty instead.
If you do decide that leasing is right for you, shop around. Leases can be negotiated just like a regular purchase. Never trade a car in towards the lease. Dealers will take advantage of this and hide the true value of the car placing the extra profit in their pocket.
The principle behind leasing is simple; you are simply renting the car just as if from Enterprise or Alamo but for a longer period of time. You never own the vehicle unless you take out the option to buy it at the end. You do usually get to add things to it if you wish like custom wheels.
The transaction is very similar between a lease and a purchase with one important difference. When you purchase a vehicle you pay for the entire cost with your payments and down payment so for example if you bought a car for $20,000 and finance the car for 36 months you will pay the $20,000 plus interest and end up paying as much as $25,000 total.
If we look at a lease on the same car the transaction may be the same except that $10,000 is subtracted in advance from the amount the leasing company would charge every month. In this example you would pay payments based on 25,000 minus $10,000 and at the end the leasing company owns the car.
In theory if you can lease a vehicle for a monthly payment based on the same profit margin that you would pay if you purchased the vehicle it would be a great deal for many people. The problem is that it usually doesn't work that way because dealers use the ability to hide things in the contract to rip people off. I have seen profits as high as $11,000 on one deal! You have to be careful.
Are you a candidate for leasing? If we listen to the automotive industry everyone should be leasing but this is simply not the case. Are you the type of person that always has a car payment and trades every three years? If so, a lease may be good for you. If your goal is to pay for a vehicle and then own it debt free then a lease is not what you want.
You must be sure that you are financially stable and know that your income will be able to pay the lease. Leases are very expensive to break or terminate early. Don't lease if you are tight financially or have any concerns about job security.
Gregg Hall has sinced written about articles on various topics from Lingerie, Desserts and Mortgage. Gregg Hall is a business consultant and author for many online and offline businesses and lives in Navarre Florida with his 16 year old son. For great go. Gregg Hall's top article generates over 3350000 views. to your Favourites.