Car Shopping: What About Leasing?

When it comes time to get your next vehicle, unless you plan to pay cash, you’ll be faced with two options: either financing a purchase or leasing. For some, leasing delivers exactly what it touts in ads — low monthly payments and very little money down, with little or no other charges for a set period. But for others, the freedom of ownership will simply make more sense. Determining whether you’re better off leasing is often a more complicated decision, depending on a host of variables including your financial situation, how long you plan to keep the car, what you plan to lease and how you’ll use it. ForbesAutos.com takes a look at those variables to give you an idea of what’s best for you.

The best way to understand leasing is to keep it simple. Without bringing in any of the confusing financial terms that shoppers can get bogged down on, you could think of leasing as a sort of extended car rental. In leasing, rather than purchasing a car, you’re basically purchasing a portion of a car’s serviceable life. The lease company uses the best educated guess of what the vehicle is going to be worth at the end of the lease — called the residual value — then splits that up over  interest-added monthly payments. At the end of the lease, the vehicle has an agreed-upon value and can either be bought at that value or just turned in.

The process, fundamentally, is as simple as it sounds. You sign on for a lease period — typically 24, 36 or 48 — months and are committed to make monthly payments. You’re responsible for routine maintenance on the car. You’re also limited in the number of miles you can put on the car over the lease duration and required to keep it in like-new condition. At the end of the lease, you simply turn the car in and that’s it.

Published on 12/05/05