Understand what automobile leasing is — and what it's not

The concept of leasing is fairly simple, yet many automotive consumers don't completely understand it and are often skeptical, even afraid of it. It is frequently misunderstood as a kind of "rent-to-own" scheme hatched up by clever dealers to separate good people from their money.

There are even well-meaning but misinformed "experts" who are quick to advise against leasing because "it's all a scam" or "it's the same as renting and you throw your money away" or "it's only good for businesses."

In fact, leasing is a well-respected and common financial concept that has been used in the commercial world for decades as a method of financing buildings, equipment, and vehicles — although it is still relatively new to most automotive consumers.

Car leasing is not renting, as many people mistakenly believe. Because many consumers still are not sufficiently informed, there have certainly been cases in which mistakes have been made and in which customers' lack of knowledge has been taken advantage of, sometimes fraudulently.

Understand how car leasing works

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 learning to use leasing to your benefit rather than to 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 mistakes, significantly overpaying, or worse, being cheated.

Leasing is a method of financing, similar to a loan. It would be a mistake to think that consumer car leasing is like apartment leasing, apartment renting, or car renting. 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.

Let's make an important statement here: You shouldn't consider leasing an automobile unless you have an understanding of car leasing fundamentals and how it works. Don't lease if you don't understand it. Understand how car leasing works and it can work for you.

That is what this Lease Guide is all about.

Why leasing?

As recently as ten years ago, most automobile consumers had never heard of leasing, much less done it. Now, approximately 20%-25% of all new cars, trucks, SUVs, and vans are leased. Approximately 75% of luxury cars are leased.

After a temporary 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, especially during times of economic troubles when consumers are looking for more affordable ways to meet their transportation needs.

Leasing provides an alternative method of financing an automobile that offers several benefits that are attractive and beneficial to many automotive consumers. In particular, leasing offers significantly lower monthly payments than a loan.

Why is car leasing popular?

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 car 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.

Is leasing for you?

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.

This Lease Guide will be your roadmap to successful car leasing. We'll help you understand how leasing works, how to determine if it's right for you, how to calculate monthly payments, how to find good deals (and avoid bad deals), and how to handle things if you are already in a lease. Start now with the first topic: What is Leasing?