If you have a particular car that you like but do not want to go through the hassle of getting an auto loan and repaying it you should consider auto leasing. When leasing a car you are paying money to use it for a limited lease period and one it is finished you will generally have the option to upgrade. The mechanism of auto leasing is similar to renting an apartment. As with leasing anything, there are pros and cons that you should consider before making the final decision.
Pros of auto leasing
• Saves money-this is a big advantage of auto leasing as it costs less. When you lease a car, you sign a lease agreement that states the duration of the lease and the amount paid each month. The amount to be paid each month is the predetermined value of the depreciation of the car during its usage. The payment also includes interest. When comparing the monthly lease payment to an auto loan monthly payment, the lease amount is less. If you are low on cash then leasing is the best solution
• Tax benefits-when you lease a car you do not have to pay upfront any sales tax on the lease amount. The sales tax is bifurcated and included in the monthly payment.
• Low maintenance-if you lease a car whose warranty is still current you will not have to spend any money whatsoever on expensive repairs.
• Variety-with a lease agreement of short duration, which is generally two to three years, you can return the car and lease another one. This way you can drive a variety of brand new or older model cars.
Cons of auto leasing
• Restricted usage-most of the auto leasing agreements comes with conditions. They can limit the number of miles that the vehicle can be driven in a year so if you use more miles that allowed you may have to pay additional fees. With a limited number of miles per year, this could limit where you can go on vacation or if you can even take any spontaneous weekend trips.
• Eligibility requirements are higher-it can be very difficult to lease a car if you have bad credit. Before leasing a car to anyone, they always consider the credit history because the auto leasing company does not want any lapses in monthly payments.
• Early termination can be expensive-it is not easy to get out of a lease agreement early. If the leased car is totaled, stolen, or you want to terminate the lease you may have to pay the rest of the lease. When totaled or stolen it the amount owed may be too much that your insurance will not cover it.
Credit: Lora Davis