Leasing a Car
From Wikicpa
Leasing a car is sometimes decribed as a cheap way to drive an expensive vehicle.
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What's the difference
The difference when you lease a car is that you have no obligation for the car when you reach the end of the lease term assuming that your leased car has normal wear and tear and has not exceeded the mileage allowance. Your lease will have a end of lease value (the residual). At your option, you can purchase the car for this amount. This amount is usually guaranteed which would not apply had you originally purchased the car.
Advantages to leasing
- Sometimes requires no downpayment
- Offers lower monthly payments (you're not building equity, only paying the estimated depreciation)
- Overall cash conservation
- Guaranteed residual value means that you can "walk away" at the end of the lease term if the vehicle is worth less than the residual.
Disadvantages to leasing
- Leasing can be confusing and tough to compare offers.
- You're not building any equity toward actual car ownership (would you be OK with renting a car for 2 years?)
- Limited usage: some leases allow for as low as 10,000 miles per year then additioanl fees apply.
Leasing Lingo
Capitalized cost: Including an miscellaneous fees, this is what you are actually paying for the car.
Residual value: This is the estimated value of what the car will be worth at the end of the lease term and it is normally guaranteed.
Mileage allowance: Most vechicle leases allow between 10,000 and 12,000 miles per year.
Excess mileage charge: Make sure the Mileage allowance amount is reasonable to your driving. If you exceed your allowance, charges from $.10 to $.40 per mile could apply.
Term: The length of time you plan to drive the car before the guaranteed purhase option. Never plan to terminate a lease early. If you can't afford the lease payments during the term of your lease then choose a less expensive vechicle.
