CAR LEASING

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The Basics of Car Leasing

What is a car lease agreement?

Lease agreements can be very complicated and include hidden fees, so be sure to read the fine print of your contract. At the end of your lease period, you may choose to enter a new lease on the same car or choose to lease a different car. You also have the choice to buy the car at the end of the lease cycle. This is called a “purchase option.”

Is leasing right for you?

Car leasing is increasingly popular, but it's not for everyone. Be prepared and know what you're looking for. If you have a general understanding of the leasing process, you'll get the best deal.

Leasing has a few major advantages. For one, monthly payments are almost always lower than the loan payments you would make to buy the same car. Leasing also gives you the advantage of changing the style or brand of your car after each lease cycle. But remember that even though you make payments on your lease, you do not own the car after your lease period ends.

Leasing also has disadvantages. It can be an expensive choice. Your car dealer may charge you extra fees for excess miles driven and excess “wear and tear” on the vehicle. Keep in mind that long-term leasing is almost always more expensive than buying. You want to avoid a lease situation in which you end up paying more in monthly payments than you would have paid to buy the vehicle.

Here are some important questions to consider when you are re thinking about leasing a car:

• How long do you want to keep your vehicle?
• How many miles do you drive on average in a year?
• How important is it to own the vehicle?
• How much money do you have available for an initial down payment?

How do I get the best deal on my lease?

To get the best deal on your lease, you should be well prepared for the negotiation process before you go to the car dealership. The first step of the negotiation process is settling on the price of the car. Remember: you can always negotiate the price of a car. Very few people ever pay the dealer's initial asking price and neither should you!

According to the guidelines of the federal Consumer Leasing Act, the car dealer must disclose to you information about costs and terms of a vehicle lease. Make sure to ask the dealer about the following terms when you go to the car dealership:

• The price of the car
• The length (or “term”) of the lease
• Your trade-in allowance
• The down payment
• The monthly payments
• Maintenance costs
• Fees for late payments
• Any various fees (including fees for excess mileage, excess "wear and tear," or end-of- lease fees)
• The early termination fee (if you end your lease prematurely)
• The manufacturer's warranty
• The cost of buying the car at the end of the lease (also know as the “purchase option”)
• Whether or not your lease includes "gap" coverage, which protects you if the vehicle is stolen or totaled in an accident

Leasing Costs

What are the sign up costs?

When you sign your car lease, you will have to make the following payments:

• Your first monthly payment
• A refundable security deposit (or your last monthly payment)
• Fees for licenses, registration, and title
• An acquisition fee (also called a “processing” or “assignment” fee)
• Freight or destination fees
• State or local taxes
• Your down payment

What are the regular costs during my lease?

During the lease, you will have to make the following payments:

• Your ongoing monthly payment
• Any additional taxes not included in the payment (such as sales, use, and personal property taxes; insurance premiums; ongoing maintenance costs; and any fees for late payment)
• Your car's safety and emissions inspections costs
• Any traffic tickets or citations
• An early termination fee (only if you end your lease contract prematurely)

What fees are due at the end of my lease?

At the end of the lease (if you don't choose to buy the vehicle) you may have to pay fees for excess miles and excessive “wear and tear” on the vehicle. Each lease contract differs on specific terms, so be sure to discuss these topics with your dealer before signing your contract.

Know Your Car Leasing Rights

Prepare yourself to lease a car by knowing your federally protected rights under the Consumer Leasing Act. The Federal Reserve Board website can help you better navigate the auto leasing process. They also have a “sample leasing form.” The Consumer Leasing Act and some state laws offer additional consumer rights that may be not covered in your lease agreement. For more information, contact your state's consumer protection agency or attorney general's office. You can also contact:

• Division of Consumer & Community Affairs. Address: Mail Stop 800, Federal Reserve Board, Washington, DC 20551

• Consumer Response Center. Address: Federal Trade Commission, 6th and Pennsylvania Ave., NW, Washington, DC 20580

Advantages of Leasing a Car

Of all the cars that Americans drive away from car dealerships, more than a third are leased. Here are some of the most common advantages.

You can choose how long you want the vehicle

Leasing allows you to choose a fixed time period. Most leases are for two or four years, but some can be longer. If you only want a car for a certain period of time, without ownership rights after the lease cycle ends, you make want to consider leasing.

You can switch cars every few years

If you like to change the make or style of the car you drive every few years, leasing may be the right option for you.

You have lower monthly payments

Low monthly payments allow you to drive a new, expensive car that you otherwise might not be able to afford to buy outright. But be careful with long-term leasing because your monthly payments might add up to more than it would have cost you to buy the car in the first place.

You have no problems selling your car

Try out a vehicle before owning it

If you want to “test drive” a car for a couple of years to decide whether to buy it, leasing may be a good option for you.

There are fewer maintenance issues

Leasing eliminates the worry of selling the car after your cycle ends. As long as your lease comes with a manufacturer's warranty, you will be covered in case anything happens to the car.

You have lower taxes

With the exception of only a few states in the US, you don't pay sales tax on the value of a vehicle when you lease. Instead, you are taxed only on your monthly payments so that your costs are spread out over time rather than paid upfront.

Disadvantages of Leasing a Car

You do not own the car

When you lease a new car, you don't own the vehicle unless you choose to buy at the end of the lease cycle. About one third of all leasers buy the car after leasing it.

You can pay excess mileage fees

Car lease contracts typically limit the number of miles you can drive to 15,000 miles annually. If you surpass your limit, your leaser will charge you with an "excess mileage" fee.

Limits on modifications and customizations

Since you don't own your leased car, you cannot make changes or customizations. If you do, you might be charged for the cost of repairs to undo what you've changed.

Misuse fees

If you return your car at the end of the lease with excessive damages, you might be charged a fee for “wear and tear”