Originally created 05/07/00

Quick tips: Auto leasing

If you have a hankering to buy a new car or truck every two to three years, short-term leasing might be for you. When you lease a car for 24 to 36 months, you pay only for the portion of the vehicle's worth that you use. That can translate into lower monthly payments, no resale risks and lower maintenance and repair costs. Consider the following tips if you're thinking about leasing:

1. Know the difference between buying and leasing. When you buy a vehicle, you own it. When you lease, you pay to drive someone else's vehicle. At lease end, you have no ownership or equity in the car.

2. Understand how monthly payments work. Monthly lease payments usually are lower than monthly loan payments because you are paying only for the vehicle's depreciation during the lease term, plus rent charges (which are like interest), taxes and fees. Monthly loan payments typically are higher because they encompass the entire purchase price of the vehicle, plus taxes, fees, interest and other finance charges.

3. Shop as if you're buying a car. Negotiate all the lease terms, including the price of the vehicle.

4. Choose the right lease for you. In a closed-end lease, you return the car at the end of the lease and walk away, but you're usually still responsible for various end-of-lease charges. In an open-end lease, you pay the difference between the value stated in your contract and the lessor's appraised value of the vehicle at the end of the lease.

5. Understand market risks. When you enter into a closed-end lease, the lessor has the risk of the future market value of the vehicle. When you buy a car, you bear the risk of the vehicle's market value when you trade or sell it.

6. Ask about lease inception fees, which are the payments you must make when the lease begins. They can include a down payment, security deposit, acquisition fee, first month's payment, taxes and title fees.

7. Inquire about extra charges. Find out whether extra charges will be assessed for excessive mileage, wear and tear, disposition and early termination of the lease. Most leases allow you to drive 12,000 to 15,000 miles a year and charge you 10 cents to 25 cents for each additional mile.

8. Secure warranty coverage. Make sure the manufacturer's warranty covers the entire lease term and the number of miles you're likely to drive.

9. Fill in the gaps. Consider obtaining "gap insurance" to cover the difference -- sometimes thousands of dollars -- between what you owe on the lease and what the car is worth if it's stolen or totaled in an accident.

10. Review the contract. Before you sign anything, take a copy of the contract home and carefully review it without any dealer pressure. Be alert for any charges that were not disclosed at the dealership, such as conveyance, disposition and preparation fees.

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