Car Lease Guide

Is a car lease right for you?
Answer the following car buying tips regarding leasing to determine if it is right for you.

Do you mind paying monthly payments?
Do you want a new vehicle every three to four years?
Do you have Porsche tastes but a Pontiac budget?
You don't like modifying your car.

Once you determine if leasing is right for you, make sure to follow these simple precautions.

Don't sign an open-end car lease. In an open-end car lease, if the cars actual value at the end of the term is less than the residual value projected at the beginning, you have to pay the difference. In a closed-end lease you have the option to buy, or you can simply walk away.
Find out what constitutes "normal wear" under the terms of the lease. You don't want to have to repaint the vehicle because of some minor paint chips.
Never lease for longer than the warranty period. Doing repairs on a vehicle that you don't own outright is not a wise idea.
Always read the fine print regarding early termination fees.

The difference between leasing and financing.
To lease a car, you enter what is essentially a rental agreement. In exchange for your monthly payment, you get to drive the automobile of your choice. However, you don't own the vehicle. At the end of the lease you own nothing. Financing is getting a loan to pay for the car. You may get a loan from your bank, or from an automotive finance company such as GMAC, Ford Credit, or BMW Financial services. At the end of the term, you own the car outright. The monthly payments of financing are higher but you have something at the end of the term.

Leasing has some hidden costs
Although leasing is less expensive, there are hidden costs. For example, if you exceed the amount of miles you are allowed to put on the car, you'll have to pay on average of $0.10 to $0.20 per mile. If you drive over by 10,000 miles, you'll owe $1000.00 at the end of the lease. Also, when you return the car you may have to pay to have any wear and tear fixed (scratches, tires, interior etc). That can end up costing you hundreds. You don't own the car so it must be driven with care.

Early termination fees
If for some reason you need to terminate a car lease before the end of the term, you'll have to pay an early termination fee. This fee can ruin your credit and will cost thousands. Don't enetr into a car lease unless you know you'll be able to pay the monthly payments.

Residual value
Residual value is the amount a vehicle is worth at the end of the lease term. The higher the residual value, the less your lease payments will be relative to a vehicle with a low residual value. If a car loses a lot of value while your leasing, the lease payments will be higher. Depreciation is the difference between the selling price and the residual value.

How to get your monthly payment
Leasing comes down to four basic components: capitalized cost, residual value, interest rate, and the term of the lease. The "cap" cost is the negotiated purchase price. Remember to include taxes and any fees required by the leasing company. A cap cost reduction is basically a down payment or a trade in allowance. Now once you have your cap cost, subtract the residual value to get your principal. Add in the interest rate, and divide the principal (with interest) by the term of the lease. Now you have your monthly payment.

With new car prices reaching new heights, signing a car lease may prove to be a good idea for many prospective new car buyers but always read the fine print.