Car Lease Options

Leasing provides flexibility in auto financing

Leasing offers options that allow you to customize how you finance your car. In fact, leasing provides more options than buying with a loan.

Vehicle Make/Model Option
When buying or leasing an automobile you obviously have a choice of many different makes, models, and trim levels. Unlike financing with a loan, the choice you make can make a big difference if you lease.

Different vehicle makes and models have different predicted future resale values. In leasing, it's called lease-end residual value. For example, a BMW generally has a better future residual than a Chevrolet. Choosing a vehicle with a high residual value lowers your monthly payment as compared to a similar vehicle of the same price with a lower residual. This is therefore an important car leasing option.

Down Payment Option
Most car leases offer the option of making a down payment, or not. This can be an important option if your finances are tight and you don't have much money to begin a car deal. If you do choose to make a down payment, you have the choice of making it any amount you want, up to actually making a large enough payment to pre-pay the entire lease and avoid monthly payments.

Be aware that some special lease deals advertised and supported by car manufacturers as short-term promotions may require a down payment. If you want the deal, you may have to make the up-front payment.

Term (Lease Months) Option
You have a choice of how long you want to lease, starting at 24 months. Standard lease terms are 24, 36, and 48 months, although "odd-ball" terms are often offered by dealers and lease companies. Shorter leases produce larger monthly payments. Extremely long leases of 60 months or more are not recommended. Furthermore, it is not adviseable to lease for a term longer than the general "bumper-to-bumper" warranty. The reason is that you would be exposed to expensive repairs on your leased car if you have problems after the warranty expires. By limiting your term option to match your warranty period insures that you will always be covered if problems occur.

GAP Insurance Option
Most car leases today come with built-in GAP coverage that protects you if your car is stolen or totaled in an accident. Without it you would be responsible for paying off your lease balance after insurance has paid for the market value of the car. In leasing, the difference between lease balance and market value can be thousands of dollars. If your lease doesn't provide for GAP coverage or does not include a waiver that pays your lease balance, you should chose this option from your dealer or through your insurance company. It is not expensive and you'll sleep better at night if you have it.

Closed-End or Open-End Lease Option
Although this is usually not a choice for consumer car leases, it might be if you lease your car for business purposes. Consumer leases are nearly always "closed-end," which means a guaranteed lease-end residual value is set at the beginning of a lease. Even if the value of the vehicle decreases below the residual value, the consumer can simply return the car at lease-end and let the lease company take the financial loss. With "open-end" leasing, primarily used for business leases, the customer take responsibility for lease-end financial loss.

Lease or Buy Option
Of course, car leasing itself is an option in how you choose to finance your automobile. Your other options are 1) buying with a loan, or 2) paying cash. Leasing is not always just a financial decision. There can be other reasons that leasing might not be the right choice. For example, if you drive more than 15,000 miles a year, prefer to drive your cars for many years, don't care about having a new car every couple or three years, like having some ownership equity, and like to customize your cars, leasing might not be the right option for you.

Summary
Car leasing offers options that make it very flexible, even more flexible than buying with a loan. However, make sure that leasing is right for you and your lifestyle before making a decision.

For more, see LeaseGuide.com