Auto Lease or Auto Loan - Tough Choice

Auto finance is now different. It is now populatedlow upfront cost and relatively low monthly
with all sorts of choices to help you purchase thatpayments. The downside is that you never own
auto of your dreams. Auto lease deals are one ofthe vehicle and may have nothing to show for all
the fastest growing areas.your payments at the end of the agreement.
An auto lease is a long-term rental agreement -Remember that residual value mentioned earlier?
terms typically start at 24 months with 36 andWell that gets interesting at the end of the lease
48 months much more usual. Auto leaseperiod. Auto lease companies usually set this at
agreements do have a few twists to watch outthe low end of expectations. If you stay within
for though.the terms of your lease the chances are that the
As the name suggests, you don't actually ownauto will be worth more than the residual value.
the auto when you take out an auto lease. TheThis means you have 3 choices: 1. Buy the auto
leasing company owns the auto and then leases itfor the agreed residual value 2. Part exchange the
to you. When the lease expires you return theauto and use the extra value as the deposit on
vehicle. If you are within your agreed mileageyour next lease vehicle. 3. Give the keys back
target and the auto has suffered no worse thanand get on with your life
normal wear and tear then you can simply workThe most common option taken by auto lease
awaycustomers seems to be to part exchange and
As you don't own the vehicle the lease companyuse the difference as the deposit on the next
can sell it at the end of your contract. Yourauto.
payments therefore depend on the differenceThere are downsides to auto leasing. In the long
between the buying price and the selling price.run it will always be more expensive than buying
Lease companies spend a lot of time and effortthrough an auto loan.
to ensure they have a good idea of exactly howAuto leasing deals are not for everyone. To
much each vehicle in their fleet will be worth atmanage their risks auto leasing companies put
the end of the lease agreement.tight constraints on the deals they offer. Leases
So, suppose you find a auto for $20,000 purchaseare for fixed period and it is practically impossible
price. The lease company does some sums andto exit a lease early. Calculation of residual values
tells you that if you take out a 3 year deal with ais highly mileage dependent so you may find any
12,000 mile per annum mileage limit they willexcess mileage payments are expensive.
guarantee a residual value of $8,000. The netNevertheless, if you want to drive a new auto,
cost to the auto leasing company is $12,000 pluscan guarantee to keep the vehicle for the full
administration charges (setting up the deal andterm of the lease, and can stick to the mileage
selling the auto at the end) and finance charges.limits in your agreement, leasing can be a great
You pay lease charges on the $12,000 difference.choice.
The result is that you can drive a new auto for