Leasing a car may or may not be to your benefit

Buying a car is expensive, but there are ways to keep your monthly payment down. One such way is to lease, rather than buy, a car. The monthly payments may be lower, but that doesn’t necessarily mean that you are paying less. Still, if you like purchasing a new car every couple of years, leasing may be the right option for you. But there are a few things that you should know about the process.

More below.

Purchasing an automobile is usually cheaper than leasing

The process of buying an automobile is not something that most people enjoy; it’s got a lot of mystery to it. Unlike buying a television set, no one is really sure just how much one “should” pay for a car, since the price is highly negotiable and the manufacturer offers incentives to the dealer so that even the “invoice” price is not what the dealer actually paid for the car. Throw in the option of leasing, rather than buying, and the process gets even more complicated. But for some buyers, leasing may be worthwhile.

When you lease a car, you are paying to use it for a set period of time, usually two to four years. The dealer sells the car to a leasing company, which then leases it to you for a price. At the conclusion of the lease, you may return the car to the dealer and you are done with it. As you may have noticed from television advertisements, the monthly payments on leases can be lower than they are for purchases. How does this work?

In short, a lease is a payment for the difference between what the vehicle is worth now and what it will be worth when you return it, with some additional charges thrown in. The total is divided by the number of months in the lease and that becomes your monthly payment. 

Here are some terms you will need to know if you are leasing a vehicle:

• Capitalized Cost - The price of the car, once you are done negotiating it. You can benefit by working out your best price without telling the salesperson whether you plan to buy or lease. The lease calculations will be based on this price.
• Capital Reduction - A fee you pay when you lease that reduces the price of the vehicle. This may include either cash or a vehicle trade in. The more you pay up front, the lower your payments will be.
• Money Factor - The money factor is the equivalent of the interest rate if you are purchasing a car. This number is used to calculate the payment.
• Excess Mileage Fee - This is a fee charged if you exceed the usually small number of miles the lease permits you to drive the vehicle annually. Make sure you know ahead of time how much you drive; many leases permit as few as 10,000 miles per year. If you exceed that number of miles over the lifetime of the lease, you will have to pay a per mile fee that can range from 10-25¢ per mile. This can add up in a hurry, so be careful. This figure may be negotiable; it never hurts to ask.

We will look at some additional issues regarding auto leasing in part two of this article.

If you own a car, you should insure your investment. Auto insurance will be expensive, but why pay too much if you don't have to? InsureMe can make a quick price quote from an insurance company in your area at a fair price.