Fees involved in leasing

Mention auto-leasing and most people will automatically assume a low-

monthly payment. There is actually more than what meets the eye, and a

number of fees are involved at various stages of the lease process.

At the beginning of the lease, you have to pay a refundable security

deposit, typically equivalent to one monthly payment, to safeguard against

non-payment and any incidental damage done to the car at the end of the

lease. You are also required to pay an administrative charge, called

acquisition fee. Other fees include licenses, registration, title and any

state or local taxes.

During your lease, and you expected to honour your monthly payment

obligations. Any failure to do so will result in late-payment charges.

You have to pay any traffic tickets, emission and safety inspections and

ongoing maintenance costs. Ending your lease early will result in

substantial early termination charges.

At the end of the lease, expect to pay any excess mileage costs, charged

at 10 to 20 p a mile. Any incidental damage done to the car, and deemed to

be above normal, will result in excess tear-and-wear charges. Finally, if

you choose not to purchase the vehicle, then you have to pay a disposition

Benefits of leasing

Despite aggressive low-interest financing, cash-back offers and other

purchasing incentives offered by leading auto-makers to buyers, leasing

numbers keep increasing steadily over the years. Leasing is not only an

attractive financial proposition to most auto-consumers, but also a

lifestyle and preference choice.

Benefit Number 1: Keeping up with the latest trends

Leasing is sometimes more of a personal and lifestyle choice than a

financial one. Many people are not comfortable with the idea of owning a

vehicle over a long period of time. They’d rather keep up with the latest

trends of the industry and drive the latest models every two to three

years.

Leasing a car gives you the convenience of having the latest technology

and safety innovation, such as an electronic stability system, DVD

entertainment systems and advanced stereo equipment. If you are willing to

forego ownership for the latest set of wheels, than leasing is your best

option.

Benefit Number 2: Purchasing Flexibility

Leasing also offers purchasing flexibility: it allows you to defer the

purchasing decision while using the car. You don’t have to haggle with your

mechanic over repair expenses, deal with hefty maintenance bills or worry

about a depreciating asset. Provided you can keep the vehicle in good

condition and stay within the contracted mileage allowance, you’re

effectively getting a test drive for the length of your lease.

At the end of your lease, you can purchase the vehicle or simply turn in

the keys and walk away. No questions asked.

Benefit Number 3: Cash Flow

Leasing offers many short-term benefits. It reduces your initial cash

outlay as you do not have to pay the large down payment required for car

ownership. You only pay for the depreciation on the car - only the part you

will use during your lease, not the entire vehicle. This results in lower

monthly payments and frees even more cash. This cash can be put to use more

intelligently elsewhere than the questionable investment of owning a

depreciating asset. If you are self-employed or use your car for your job,

then you can write off your leasing payment as a business expense.

Benefit Number 4: Negotiating Leverage

Although it may seem a little unorthodox in this industry, almost

everything about leasing is negotiable. If you know all the fees involved,

you can lower your monthly payments, negotiate the purchase price of the

vehicle at the end of the lease and contract additional miles on top of

your mileage limit. You can also do some shopping around and compare deals

from different auto-insurers to get the cheapest GAP insurance for your

The residual value of leasing

If you are in the market to lease a vehicle, you will hear the term

“residual value” recur like a leitmotif. A residual value does not only

affect your monthly payments, but is equally used by leasing companies

to determine any penalties should you break your lease early and how

much to pay if you decided to buy the vehicle at the end of your lease.

Let us first start by looking at the meaning of residual value. The

term “residual value”, refers to the value of something after it has

been used for some time. In leasing lingo, it refers to the

depreciation of the vehicle’s value over the life of its lease.

So how does it exactly affect your monthly payments? When you lease a

car, you pay for the car’s value that you use over the lease length.

Suppose you leased an $18,000 car for 2 years: the leasing company

needs to estimate the value of this car in two years time in order to know

how much of the car you will be using during your lease term. That’s where

the “residual value” comes into the equation. If the residual value is

estimated to be $13,000 at the end of your lease, then your monthly

payments will be calculated on the $5,000 you will use over 24 months,

giving an average monthly payment of $208.3 (plus interest, tax and fees).

How about if the car is expected to lose half its value over the same

period? In this scenario, you will be using $9,000 over the same period,

leaving you with a higher monthly payment of $375 (plus interest, tax and

fees).

As you can see, residual values are a key factor in determining how much

money to pay on your lease and the higher the residual value, the lower

your monthly fees. This works in reverse if you build a bond with your car

and decide to purchase it at the end of your lease. If we stick with the

same example above, the lower monthly payments in the second scenario come

at the cost of paying substantially more to buy your car at the end of the

lease.

So, since the residual value is so important, how do I know which one is

best for me? Well, it all depends whether you want to purchase the car at

the end of your lease. If you don’t want to make a large down payment and

you want low monthly payments, then a car that holds with a higher residual

value is a good deal. If you are thinking of purchasing the car at

lease-end, then you need to balance low-monthly payments with a moderate

Benefits of leasing

Despite aggressive low-interest financing, cash-back offers and other

purchasing incentives offered by leading auto-makers to buyers, leasing

numbers keep increasing steadily over the years. Leasing is not only an

attractive financial proposition to most auto-consumers, but also a

lifestyle and preference choice.

Benefit Number 1: Keeping up with the latest trends

Leasing is sometimes more of a personal and lifestyle choice than a

financial one. Many people are not comfortable with the idea of owning a

vehicle over a long period of time. They’d rather keep up with the latest

trends of the industry and drive the latest models every two to three

years.

Leasing a car gives you the convenience of having the latest technology

and safety innovation, such as an electronic stability system, DVD

entertainment systems and advanced stereo equipment. If you are willing to

forego ownership for the latest set of wheels, than leasing is your best

option.

Benefit Number 2: Purchasing Flexibility

Leasing also offers purchasing flexibility: it allows you to defer the

purchasing decision while using the car. You don’t have to haggle with your

mechanic over repair expenses, deal with hefty maintenance bills or worry

about a depreciating asset. Provided you can keep the vehicle in good

condition and stay within the contracted mileage allowance, you’re

effectively getting a test drive for the length of your lease.

At the end of your lease, you can purchase the vehicle or simply turn in

the keys and walk away. No questions asked.

Benefit Number 3: Cash Flow

Leasing offers many short-term benefits. It reduces your initial cash

outlay as you do not have to pay the large down payment required for car

ownership. You only pay for the depreciation on the car - only the part you

will use during your lease, not the entire vehicle. This results in lower

monthly payments and frees even more cash. This cash can be put to use more

intelligently elsewhere than the questionable investment of owning a

depreciating asset. If you are self-employed or use your car for your job,

then you can write off your leasing payment as a business expense.

Benefit Number 4: Negotiating Leverage

Although it may seem a little unorthodox in this industry, almost

everything about leasing is negotiable. If you know all the fees involved,

you can lower your monthly payments, negotiate the purchase price of the

vehicle at the end of the lease and contract additional miles on top of

your mileage limit. You can also do some shopping around and compare deals

from different auto-insurers to get the cheapest GAP insurance for your

The residual value of leasing

If you are in the market to lease a vehicle, you will hear the term

“residual value” recur like a leitmotif. A residual value does not only

affect your monthly payments, but is equally used by leasing companies

to determine any penalties should you break your lease early and how

much to pay if you decided to buy the vehicle at the end of your lease.

Let us first start by looking at the meaning of residual value. The

term “residual value”, refers to the value of something after it has

been used for some time. In leasing lingo, it refers to the

depreciation of the vehicle’s value over the life of its lease.

So how does it exactly affect your monthly payments? When you lease a

car, you pay for the car’s value that you use over the lease length.

Suppose you leased an $18,000 car for 2 years: the leasing company

needs to estimate the value of this car in two years time in order to know

how much of the car you will be using during your lease term. That’s where

the “residual value” comes into the equation. If the residual value is

estimated to be $13,000 at the end of your lease, then your monthly

payments will be calculated on the $5,000 you will use over 24 months,

giving an average monthly payment of $208.3 (plus interest, tax and fees).

How about if the car is expected to lose half its value over the same

period? In this scenario, you will be using $9,000 over the same period,

leaving you with a higher monthly payment of $375 (plus interest, tax and

fees).

As you can see, residual values are a key factor in determining how much

money to pay on your lease and the higher the residual value, the lower

your monthly fees. This works in reverse if you build a bond with your car

and decide to purchase it at the end of your lease. If we stick with the

same example above, the lower monthly payments in the second scenario come

at the cost of paying substantially more to buy your car at the end of the

lease.

So, since the residual value is so important, how do I know which one is

best for me? Well, it all depends whether you want to purchase the car at

the end of your lease. If you don’t want to make a large down payment and

you want low monthly payments, then a car that holds with a higher residual

value is a good deal. If you are thinking of purchasing the car at

lease-end, then you need to balance low-monthly payments with a moderate

Fees involved in leasing

Mention auto-leasing and most people will automatically assume a low-

monthly payment. There is actually more than what meets the eye, and a

number of fees are involved at various stages of the lease process.

At the beginning of the lease, you have to pay a refundable security

deposit, typically equivalent to one monthly payment, to safeguard against

non-payment and any incidental damage done to the car at the end of the

lease. You are also required to pay an administrative charge, called

acquisition fee. Other fees include licenses, registration, title and any

state or local taxes.

During your lease, and you expected to honour your monthly payment

obligations. Any failure to do so will result in late-payment charges.

You have to pay any traffic tickets, emission and safety inspections and

ongoing maintenance costs. Ending your lease early will result in

substantial early termination charges.

At the end of the lease, expect to pay any excess mileage costs, charged

at 10 to 20 p a mile. Any incidental damage done to the car, and deemed to

be above normal, will result in excess tear-and-wear charges. Finally, if

you choose not to purchase the vehicle, then you have to pay a disposition