Info-Authority.com: Automobile Leasing

Automobile leasing is a method of financing by which an individual gains use of a vehicle by agreeing to make payments on it over an agreed length of time. Leasing is essentially a form of rental with a few significant differences: the leasing occurs over a long period, it can only be cancelled with difficulty, and the lessee has the option to purchase the vehicle at a reduced price when the leasing period is complete.

Leasing a Car

Leases are usually obtained from third parties rather than directly from auto dealerships, although some dealers do offer leases directly. Most often the lessor is a company affiliated with the dealership for the express purpose of handling such arrangements. Banks and loan offices also provide independent leasing services.

Buying a Leased Car

The terms of the lease will stipulate the length of the period of use, and will establish a buying price (known as the residual value) for the automobile when the term is complete. The buying price takes into account the expected wear-and-tear and anticipated mileage on the vehicle at the end of the period in question. There will likely be a provision in the lease for a reduced residual value should the lessee put more wear on the vehicle than is considered standard. When the leasing period is concluded, the lessee may then purchase the automobile at the residual price, revert it to the lessor, or use it as a trade-in to offset the price of a new automobile.

Benefits of Car Leasing

There are numerous benefits to leasing for all parties concerned. In particular, the would-be purchaser has a variety of incentives to contract to a lease. Monthly payments on a lease are far less expensive than those of a loan, and the ability to trade in for a new car every few years allows the user to have transportation that is consistently reliable—and covered under warranty, in the event that something breaks. Leases also seldom require significant down payments, so the potential lessee is not required to have money in hand. For the lessor, a profit is made on the monthly payments. For car dealerships, leases promote automobile sales, particularly those of brand new vehicles, as the trade-in system encourages participants to possess a relatively new automobile at all times.

Disadvantages of Car Leasing

There are also downsides; leasing is not for everyone. Because the lessee is responsible for the maintenance of a car that he or she does not own, insurance costs tend to be fairly high. For similar reasons, an excellent credit rating is required to contract a lease. For those who put a great deal of strain on their cars, or wish to customize or otherwise anticipate damage, a lease can be very costly. In addition, the cycle of leasing and trade-ins ensures that lessees will need to make monthly payments for a car they may never actually own. Leasing has nonetheless become extremely popular in America over the last decade. As of 2005, around a quarter of all vehicles were financed on some sort of leasing plan.

By Matthew Ingalls




	Automobile Leasing Automobile leasing is a method of financing by which an individual gains use of a vehicle by agreeing to make payments on it over an agreed length of time. Leasing is essentially a form of rental with a few significant differences: the leasing occurs over a long period, it can only be cancelled with difficulty, and the lessee has the option to purchase the vehicle at a reduced price when the leasing period is complete. Leasing a Car Leases are usually obtained from third parties rather than directly from auto dealerships, although some dealers do offer leases directly. Most often the lessor is a company affiliated with the dealership for the express purpose of handling such arrangements. Banks and loan offices also provide independent leasing services. Buying a Leased Car The terms of the lease will stipulate the length of the period of use, and will establish a buying price (known as the residual value) for the automobile when the term is complete. The buying price takes into account the expected wear-and-tear and anticipated mileage on the vehicle at the end of the period in question. There will likely be a provision in the lease for a reduced residual value should the lessee put more wear on the vehicle than is considered standard. When the leasing period is concluded, the lessee may then purchase the automobile at the residual price, revert it to the lessor, or use it as a trade-in to offset the price of a new automobile. Benefits of Car Leasing There are numerous benefits to leasing for all parties concerned. In particular, the would-be purchaser has a variety of incentives to contract to a lease. Monthly payments on a lease are far less expensive than those of a loan, and the ability to trade in for a new car every few years allows the user to have transportation that is consistently reliable—and covered under warranty, in the event that something breaks. Leases also seldom require significant down payments, so the potential lessee is not required to have money in hand. For the lessor, a profit is made on the monthly payments. For car dealerships, leases promote automobile sales, particularly those of brand new vehicles, as the trade-in system encourages participants to possess a relatively new automobile at all times. Disadvantages of Car Leasing There are also downsides; leasing is not for everyone. Because the lessee is responsible for the maintenance of a car that he or she does not own, insurance costs tend to be fairly high. For similar reasons, an excellent credit rating is required to contract a lease. For those who put a great deal of strain on their cars, or wish to customize or otherwise anticipate damage, a lease can be very costly. In addition, the cycle of leasing and trade-ins ensures that lessees will need to make monthly payments for a car they may never actually own. Leasing has nonetheless become extremely popular in America over the last decade. As of 2005, around a quarter of all vehicles were financed on some sort of leasing plan. By Matthew Ingalls Related Links: Auto Leasing Introduction for Consumers Helpful summary of automobile leasing practices and terms.