Car Buying Secrets

Auto Leasing - You should have done it sooner

By: Roosevelt Gist

The auto lease is the most flexible auto financing tool available. When properly explained and fully understood, it will become your auto financing choice. Auto leasing is gaining popularity with new and now used cars for one reason, the increasing price of cars. 

If you would abandon your intense desire for immediate ownership you would be leasing now. The major difference between leasing and buying is the timing of ownership. When you buy ownership is assumed at the signing of the contract. However, technically you do not own the car until you completely pay off your auto loan. When you lease ownership occurs at the end of the lease if you desire. 

If you keep a vehicle for six years or more, do not lease. However, if you trade cars with a loan balance, consider leasing. There are some very important facts that you must know, understand and accept before you enter into the lease agreement. Finding these out later will sour your leasing experience. I will touch on some of them. The space provided for this column does not allow me to go into all of them. 

There are two types of leases, closed end and open end. With the closed end lease you may return the car to the lessor ( the company that owns the vehicle) at the end of the term and "walk away." If you have not damaged the car, experienced any excess wear and tear and did not exceed the mileage allowance you will have no financial obligation to the lessor. And, made all your lease payments. Because the lessor is taking most of the risk your monthly payments will be higher. 

The closed end lease is the most popular and provides the most protection. With the open end lease your monthly payments are lower but your end of lease obligations are determined by the fair market value of the car at that time. The residual value (projected future value of the car) set by the lessor at lease inception may far exceed the fair market value of your car at lease end and you will have to pay the difference. Example the Edsall. 

When you lease you are bound by the mileage allowance set at the lease signing. If you exceed it you pay a penalty. Pay a little more and match the mileage to your real driving habits. Excess wear and tear is an arbitrary determination and unless you just totally destroy the car this should not be an area of concern. 

Be sure you have the proper types and amount of insurance. Your lessor will give you the limits. Get GAP coverage so that you are protected if your car is stolen and not recovered or totaled and your primary coverage does not pay the full replacement
value. Make the term of the lease match how often you trade out of cars. Don’t go for longer lease terms because the monthly payments are lower. Early termination of a lease is very costly. Death before your lease term is up falls under early termination. 

Fines, liens, tickets and other encumbrances are your responsibility. Taxes, tags and official fees for the leased car are your responsibility. 

The lease can be adjusted to match your real driving needs. You can save money by leasing and if you work with a knowledgeable lease consultant you’ll know you should have leased sooner. 

Questions to ask the salesperson: Please explain early termination? What is your excess mileage rate and penalty? Is this a closed end lease? If I sell the vehicle at lease end do I keep all profits above the residual value? Is GAP coverage included in
the lease?