About Automobile Leases

Anyone who needs a car should look into leasing. Often, if you're a repeat customer at a dealership, a down payment isn't needed, and lease payments are lower than they would be if you financed. Plus, you have the opportunity to turn in the vehicle and get a brand-new one in just a few years.

The Facts

Automobile leases are a contract for use of a car, rather than purchasing one outright by financing. There is a written, binding contract involved and the length of time varies anywhere from two to five years. The contract has the details about buying out the lease at the end of the time period, if desired. Lease payments are generally lower than financing because you do not actually own the car. You still must have your own car insurance coverage on the vehicle.

Features

Leases explain whether there is a down payment involved, the monthly payments and how many miles the vehicle can be driven each year. You can buy the car at the end of the agreement (you do not own the car until you purchase it for the agreed-upon amount). Otherwise, you must return the vehicle in good condition at the end of the lease. It also covers who is responsible for any repairs if damage occurs.

Benefits

Automobile leases are ideal for those who want a new car every few years and don't want to worry about warranties, since most leases are shorter than the warranty period on the car. Roadside assistance is also available with many cars for the first few years--it covers things like flat tires and breakdowns while on the road--and also is included under most lease time periods. Those who don't drive a lot can benefit from a lease because you are likely never to go beyond the yearly mileage maximum.

Risk Factors

Those who drive many miles in a year, usually over 12,000, should avoid leasing a car. Most leases have a clause about going over the allotted mileage each year, resulting in a charge for each mile driven over the annual limit. These extra miles quickly add up to a lot of money. Some leases even have lower yearly mileage limits, such as 8,000 or 10,000 miles. Also, if you have bad credit, you will have to put down a large amount of cash and then pay large monthly payments. Do the math before signing a lease and see whether leasing or financing is right for you and your financial situation.

Type

Two types of automobile leases are available: open-end and closed-end. Open-end leases are less common and can involve outlaying more money at the end of the lease because you must pay for the difference in the total cost of lease payments versus the car's actual value. Closed-end leases only provide an option to buy the vehicle--for a specific price--once the lease is up, but you are not obligated to do so.