Consider Carefully before Leasing

Leasing is a viable alternative method of acquiring the use of a vehicle, but don't make the mistake of moving up to a more expensive automobile just because a lower lease payment (compared with that of a loan) fits more comfortably into your budget. Remember that at the termination of a lease, you'll have to start again from scratch to acquire your next ride. In this respect, leasing an automobile is like renting a home. Here are a few other things to keep in mind when considering a lease:

The lessor's profit. Lease payments are established to provide a return on the lessor's capital that's tied up in the leased vehicle. The lower the return that a lessor will accept, the more you should benefit from lower lease payments.

Qualifying. You must normally have a good credit score to qualify for a lease. A low-down-payment lease places the lessor at greater risk of suffering a substantial financial loss in the event that you default on the lease obligation.

Getting the best deal. You should aggressively shop for a lease just as you'd shop among dealers for the best price on a car and among financial institutions for the lowest rate on a loan. Lenders will sometimes offer special leasing deals. Additionally, automobile manufacturers will often offer attractive leases on particular models that they're promoting.

Breaking the lease. Terminating a lease early will negate all of the calculations regarding residual value and the lessor's expected return. Lessors normally charge a substantial penalty in the event that you decide to terminate early. Therefore, you should sign a lease only if you're prepared to fulfill its terms completely.

Mileage. Leases usually specify a maximum number of miles (typically 12,000 to 18,000 miles annually) that you can drive the vehicle without being saddled with a hefty excess-mileage charge. You should attempt to negotiate for a higher allowance if you expect to exceed the lease's limit.

Maintenance. You're typically responsible for all repairs, insurance, service, and maintenance on a leased vehicle. At the end of the lease, you'll be assessed an additional fee for any excessive wear.

Taxes. Sales taxes, if applicable, are ordinarily added to each lease payment. You're also responsible for paying any other taxes and fees, such as title, license and registration.

Down payment. Many automobile leases require a nonrefundable down payment, depending upon the value of the vehicle that's being leased. You may also be required to pay a refundable security deposit. These amounts effectively make leases less desirable.

A lease is most appropriate if you regularly trade for a new car every two or three years. Leasing allows you to move from one vehicle to another without being required to negotiate a trade or come up with a large down payment. On the other hand, if you ordinarily keep a car for six or seven years, your best bet would probably be to finance the purchase with a loan or personal savings. Financing your car with a three-year loan will allow you to drive it for an additional three or four years free of loan payments. The reprieve from those $300-to-$400 monthly car payments will provide you breathing room to take care of other financial matters.

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