I
Want To Understand Auto Leasing
by SolveYourProblem.com
There’s a shiny new Pontiac G6 parked in your
next-door neighbor’s driveway. Standing proudly next to it
is a gleaming new Jeep Grand Cherokee. This is the second time
in four years that your neighbor and his wife have driven home
on brand-new sets of wheels. Unless you live right next to
state lottery winners or an organized crime family, there could
be a more plausible explanation for your neighbors’ seemingly
good fortune: they might be leasing.
What is automotive leasing?
Automobile leasing is paying for the use of the car, rather
than paying for the car itself. Monthly lease payments are
based on the projected cost of the vehicle’s depreciation over
the period covered by the lease. For instance, suppose you
lease a car valued at $20,000. Over the course of a three-year
lease term, let’s suppose the car depreciates in value to $10,500.
This depreciated value, also called the vehicle’s residual
value, is subtracted from the car’s initial value. The difference
between the two values, in this case $9,500, is what you will
be paying for the duration of the lease. Leases typically last
for two four years, with leases on high-end vehicles and luxury
cars sometimes stretching up to five years. When your lease
expires, you have the option of either buying the vehicle or
moving on to a new lease.
What are the benefits and drawbacks of leasing?
Monthly lease payments are generally lower than monthly loan
payments on the same vehicle, assuming that the lease and the
loan have the same duration. Leasing lets you drive a new vehicle
every few years depending on the length of your lease. Additionally,
leasing allows you to drive a more expensive and feature-packed
vehicle for the same monthly payment you’d be making to buy
a lower-priced model. Your leased vehicle comes with a warranty
while it’s in your use. Furthermore, automobile leasing saves
you the trouble of selling your used car or trading it in when
you’re ready to buy a new one. Moreover, you may also write
off a portion of your lease payments as a business expense
if you have a legitimate business use for the vehicle. Ask
a qualified accountant or tax professional about the eligibility
requirements for the tax write-off.
While leasing offers several benefits, it also has its share
of drawbacks. One disadvantage is that vehicles on lease programs
have annual mileage limits, usually 15,000 miles per year.
If you exceed the mileage limit, you will be charged a predetermined
amount for every excess mile. Another drawback to leasing is
the slew of fees and charges that you will have to pay at the
beginning and end of the lease. Among these additional fees
are the lease acquisition fee, the lease disposal fee, and
the lease finance charge. There are also extra charges for
extended warranties, insurance coverage, and other items. Furthermore,
if you terminate the lease before the lease period is over,
you will be assessed an early termination penalty. Another
disadvantage to leasing is that you will have to return the
vehicle when the lease expires, unless you choose to purchase
the vehicle at lease-end.
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SolveYourProblem.com : 2007
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