The Concept of Car Leasing
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 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 common financial concept that has been used in the business world for decades as a method of financing buildings, equipment, and vehicles. However consumer automobile leasing has only been generally available for about 30 years.
Car leasing is not the same as renting, as many people mistakenly believe. It’s simply a form of auto financing, although a bit more complicated than buying a car with a loan.
If you understand how it works, you’ll be better prepared to make intelligent decisions about leasing.
Understand How Car Leasing Works
As with any business transaction, the key to successful and smart 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. It’s also about knowing when you should lease, and when you shouldn’t.
” I recently used your online leasing guide as a crash course before going to negotiate my new car lease. Wow, for once I went into a dealer and knew what I was doing! I’m so glad I found your guide! ” Jeanette, S.F., CA
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. It’s unfortunate that the same terminology is used. 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 the fundamentals of how leasing works. Don’t lease if you don’t understand it, particularly if your only reason for considering leasing is that the monthly payments are lower.
As recently as twenty years ago, many automobile consumers had never heard of leasing, much less done it. Now, approximately 32% (1 of every 3) of all new cars, trucks, SUVs, and vans are leased. Of those vehicles, luxury cars are leased at an even higher rate — 70%-75% .
After a temporary slowdown a few years ago, car leasing is again growing in consumer 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 uncertainty when consumers are looking for more affordable ways to meet their transportation needs.
Leasing provides an alternative method of financing that offers several benefits that are attractive and beneficial to many automotive consumers. In particular, leasing offers significantly lower monthly payments than a loan, although that’s not a good enough reason, by itself, to decide to lease.
Why is Car Leasing Popular?
Two factors helped cause the shift to leasing. First, new cars prices have rapidly spiraled upwards over the last few years, often putting prices out of reach of average buyers.
Second, increased cost of housing, food, and other necessities of life have left less money in many families’ monthly budget for transportation. The net effect is that people have become increasingly eager to find ways to make personal vehicles more affordable and to preserve their cash for more important purposes.
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 decades. 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. Make sure you use this Lease Guide to help you determine whether it’s right for you, in your particular situation.
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 lease 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?