One of the most commonly misunderstood terms in the Auto Industry is "leasing". The concept of leasing is fairly simple, yet many automotive consumers don't completely understand it. It is frequently misunderstood as a kind of cheap "rent-to-purchase" scheme hatched up by clever automobile dealers to steal money from the consumers. There are even so called "consumer experts" who advise against leasing because it is another form of a scam.
During all this process, the advantages of leasing a car get overlooked. Leasing is a well respected financial concept that has long been used in the business world as a method of financing buildings, equipment, and vehicles — although it is still relatively new to most automotive consumers. Because of the unawareness of typical automobile consumers, you will find cases where mistakes have led to huge losses for consumers.
As with any business transaction, the key to successful and intelligent auto leasing is understanding how the process works, taking the time to properly prepare yourself before making decisions, and using it to your benefit rather than your disadvantage.
Without at least a basic understanding of leasing concepts, knowing how to get a good deal, and knowing how payments are figured; you expose yourself to the very real possibility of making serious mistakes, significantly overpaying, or worse, being cheated.
It would be a mistake for you to think that car leasing is like apartment leasing, or car renting, or business leasing. It is not. The differences are so significant that any attempt to try to understand one by drawing on your knowledge of the other will only result in a serious misunderstanding.
If you look back a few years, automobile leasing was not such a common practice. However now 1/5th of all new automobiles are leased. After a slowdown during the last few years because of aggressive zero-percent loan programs, leasing is once again growing in popularity. Just look at the volume of lease ads in your local newspaper and on TV to get a notion of how popular automobile leasing has become.
Two factors helped cause the shift to leasing. First, the cost of new cars has rapidly spiraled upwards over the last few decades, often putting prices out of reach of average buyers. Second, federal tax law changes in the late 1980's eliminated finance interest deductions on automobile loans, which further increased ownership cost. The net effect is that people have become increasingly eager to find ways to make personal vehicles more affordable.
Auto manufacturers and finance companies have come to the rescue in a big way with consumer leasing programs. These programs are simply a modified version of business leasing that have been around for years. This helps explain much of the strange language and confusing concepts associated with consumer leasing today.
In a nutshell, leasing has become popular because it offers people a way to drive the vehicles they want — often better vehicles than they could buy — for less money and less hassle. Low monthly payments are the big attraction, although we'll soon find out why it's important to look at other factors before deciding to lease.
Leasing can offer advantages but it may not fit everybody's needs and lifestyle. Furthermore, leases can be somewhat more complicated than new-car purchase loans and require greater care and preparation in order to get a good fair deal — and avoid problems. Some people will discover that leasing offers them no benefits and that they should not lease. Others will realize that leasing is right for them and that they can benefit greatly.
