Leasing, simply put, is renting a car for years at a time. Unfortunately, lenders and car dealers don’t want to make it that simple. They have a bunch of special leasing terms, tricks, and misleading information that are designed to confuse. Here are the basics.

Reasons People Lease:

• The monthly payment needed to lease a car is usually less than the payment needed to buy that same car. This is the main reason most people lease.

• Since most leases only last two or three years, you probably won’t have to pay for any repairs because the car will be under warranty as long as you’re leasing it. That means your expenses are lower when you lease than when you buy.

• Leasing offers you more options than buying. At the end of your lease, you can give the car back, you can buy it at a pre-determined price, or you can trade-in or sell your leased vehicle.

Reasons People Don’t Lease:

• Mileage requirements. If you drive more than 15,000 miles per year, leasing probably doesn’t make any sense for you. Leasing tends to be too expensive if you drive more. NOTE: You’ve got to be careful about estimating how many miles you’re going to drive. Be realistic. If you underestimate, you could have to pay thousands of dollars in mileage penalties at the end of your lease.

• Condition requirements. Remember that when you lease a car it’s not your own - you have to keep it in perfect (or near perfect) condition. If you’re the type of person that can’t guarantee that your car is going to be in good condition when you bring it back in two or three years, leasing is not for you.

General Leasing Tips:

Fees. With leases, we always tell people to look out for hidden fees. It’s not uncommon to see a “vehicle return fee” or a “lease buyout fee” – these charges are bogus. If you don’t understand a fee, ask someone to explain it to you.

Early Termination. While it is possible to get out of a lease early, it’s very difficult. It’s best not to lease unless you’re certain that you can keep the car for the full term of the contract.

“Open” Versus “Closed” End Lease. When it’s time to end your lease, you want to make sure you don’t have to worry about paying any balloon payments. With a “open-end” lease, you might have to sit down and negotiate your final payment. With a “closed end” lease, you have nothing to worry about.

Don’t lease a used car. You may see used car leases being advertised, but they just don’t make any sense. For the amount of money that you pay to lease a used car, you could probably BUY the same used car for the same payment. Besides, you’re not going to save any money on expenses leasing a used car like you would leasing new. Used car leases are almost always a bad deal.

One final point - if you’re getting a vehicle for your business, consider leasing. Talk to your accountant to make sure, but real estate agents, small businesses, and large corporations tend to lease their vehicles - maybe you should too.

As always, take your time when buying a new or used car. Do your car research, get multiple financing quotes, and feel free to contact us with your questions.