You open the curtains, look out, and blocking your view is a shiny new Pontiac G6 or otherwise expensive car sitting in your neighbor's drive. You wonder where your neighbors get the money to buy a new car every year or so. Well, they could be automobile leasing.

What is automotive leasing?

With automobile leasing you pay for the use of the car not for the car itself, ie: you never actually own the car, and it stays the property of the leasing company. Monthly lease payments are based on the estimated cost of the vehicle’s depreciation over the period covered by the lease. For instance, suppose you lease a car valued at $20,000. Over the course of a three-year lease term, the car may depreciate in value to $10,500. This depreciated value, or residual value, is subtracted from the car’s initial value. The difference between the two values, in this case $9,500, is what you will be paying for the duration of the lease. Leases typically last for two four years, with leases on high-end vehicles and luxury cars sometimes stretching up to five years. When your lease expires, you have the option of either buying the vehicle or moving on to a new lease, and most leasing companies give you the option of upgrading your car at the expiration of your lease.

What are the benefits and drawbacks of leasing?

Monthly lease payments are generally lower than monthly loan payments on the same vehicle, assuming that the lease and the loan have the same duration. Leasing lets you drive a new vehicle every few years depending on the length of your lease. Additionally, leasing allows you to drive a more expensive and feature-packed vehicle for the same monthly payment you’d be making to buy a lower-priced model. Your leased vehicle comes with a warranty while it’s in your use. Furthermore, automobile leasing saves you the trouble of selling your used car or trading it in when you’re ready to buy a new one. Moreover, you may also write off a portion of your lease payments as a business expense if you have a legitimate business use for the vehicle. Ask a qualified accountant or tax professional about the eligibility requirements for the tax write-off.

While leasing offers several benefits, it also has its share of drawbacks. One disadvantage is that vehicles on lease programs have annual mileage limits, usually 15,000 miles per year. If you exceed the mileage limit, you will be charged a predetermined amount for every excess mile. Another drawback to leasing is the slew of fees and charges that you will have to pay at the beginning and end of the lease. Among these additional fees are the lease acquisition fee, the lease disposal fee, and the lease finance charge. There are also extra charges for extended warranties, insurance coverage, and other items. Furthermore, if you terminate the lease before the lease period is over, you will be assessed an early termination penalty. Another disadvantage to leasing is that you will have to return the vehicle when the lease expires, unless you choose to purchase the vehicle at lease-end.

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Over the past few years, the popularity of car leasing has soared. When you compare leasing with buying a car and suffering the humongous monthly installment fees, leasing provides a better and more viable financial option.

For auto leasing, you need to know the tricks of the trade so that you will not end up paying more than when you directly buy the car. There are car dealers and manufacturers who can give you your money's worth if you want to go for this option.

You will get a better deal out of the car dealers if you appear knowledgeable about the auto leasing industry, so read up.

'Auto Leasing Defined'

You would "lease" a car by paying for the costs by which the vehicle depreciates in value. You can calculate depreciation costs by subtracting the car's value by the time that the lease ends, from its original value. There are cars which depreciate more than other brands. The rule of thumb is, the smaller the amount that your car depreciates, the lesser the costs to lease.

Once you decide to go for leasing over buying a vehicle, you may choose the one with the least depreciation value.

If you decide to go for this option, you need to learn about "lease term". This is the number of months that the vehicle is leased. Typically, leases last for 24, 36 or 48 months, depending on your contract.

'Leasing or buying: Which option is kinder to your pocket?'

-Automobile leasing requires you to have a good credit, so if your credit score is low, it is better to go for buying.

You may even be disapproved for a lease if your credit history is not good. Or, at the very least, you will be required to pay higher monthly dues.

-Leasing companies would need to profit from you.

They will invest capital on buying the car, then lease that car out. Just like with any loan, their money shoudl earn interest so you better consider this as well when considering the advantages of buying.

-Make sure that you get the best deal out of car leasing by comparing the monthly costs with the interest rates of your local car dealer.

By making a note and comparing both prices, you would more or less have an idea of which option to go for.

'Car Leasing Tips'

- When deciding on the model or make of the car that you will lease, choose the Japanese and European cars. These are basically the brands which have lower depreciation rates, as compared to the American vehicles.

You will find out that most luxury cars have the lowest depreciation values. Research, visit a local car dealer in your area or ask friends who are currently leasing cars. They should have some great tips to share with you on how to get the best deal out of leasing cars.

-Leasing a car may put a big dent in yur budget when it comes to car maintenance. You need to make sure that you are a "car-friendly" user when you opt to go for auto leasing.

-Definitely go for leasing if you are the type who wants to own the latest cars in the market. In the long run, leasing will be a better option for you as compared to buying the latest car model then trading in or selling the old one that you have.

-As much as possible, choose a shorter lease period. This is so that you can optimize the warranty of the vehicle.

-Finally, avoid the long-term leases, because the car's value will decrease by the time the lease ends, and this is mostly when engine problems begin.

Robert Thatcher is a freelance publisher based in Cupertino, California. He publishes articles and reports in various ezines and provides leasing resources on http://www.just-leasing.info.

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