Most drivers who are satisfied with leasing point to the low monthly payment compared to a loan payment if the car were purchased instead of leased. With today's cost of new vehicles, this can have a lot of appeal. Taken another step, one therefore could drive a more expensive car than what the same monthly loan payments would buy. Leasing may allow for a very low downpayment, also, no down payment at all.

Leasing can be a very simple way to drive a new car. Sign on the dotted line and off you go. Routine service is all the maintenance the new car requires, and anything major usually will be covered by warranty, which often runs at least as long as the lease. Return the car when the lease expires and either go on your merry way, or sign on the dotted line again and drive off in another new car.

You may want to consider the option to buy the car at lease end. If the residual value was properly set at the beginning of the lease, and with the knowledge of how well you maintained it, you could buy a favorite car at a reasonable price.

Of course, there are disadvantages to leasing, too. For example, you as lessee never do have ownership interest in the car during the lease, which means it cannot be counted by you as an asset. Your monthly payments do not build any equity in the vehicle which could be used as security for a loan, for example. For those who use a lease to stretch their monthly budget to include a more expensive car, higher insurance payments become a consideration.

It is possible in many cases to negotiate some of the lease terms, for example, the residual value. Raise it to lessen the depreciation you must pay for, or lower it to gain a better purchase option at lease end. A downpayment can be made in either cash or through trade-in of the car you now own (keeping in mind this is a downpayment on the lease amount, not on the car).

Lease contracts can be complex, and extra costs may not be obvious. Also, lease contracts are for the most part unregulated, so unlike loan documents, the annual percentage rate or APR need not be disclosed (often 12-14% on leases), nor does the actual sticker price of the car (often at least the full sticker price).

Most lessors are of course professional in all their dealings, but the growing popularity of leasing has brought disappointing experiences for some.

For example, some lessors apparently have added so much profit to the monthly payment that the lessee winds up paying more in the end than if they had purchased the car. Experts agree that if you cannot get a clear, understandable explanation of every word in the lease (including a comparison to the cost of a direct purchase of the vehicle) you should walk away and visit another lessor.

Tips For Driving Home A Good Deal

If you decide to lease, you'll want to drive home a good deal. Here are a few tips to keep in mind:

• Think twice about leases that last longer than you plan to keep the car. You may have to pay to terminate the lease early.
• Choose a three or four year lease. They're less costly - including per month - than shorter - and longer term leases.
• Consider a "closed-end" lease over a "open-end" lease. You'll assume less risk when the lease expires.
• Beware of high downpayments.They make leasing unnecessarily costly.
• Add up the fees (early termination, disposition fees, excess wear and tear, extra mileage, etc.).
• Evaluate purchase options. If you want to buy at lease-end, make sure the vehicle's projected worth is specified in writing before you sign the lease contract. Include Gap Insurance in the contract.
• Consider more than monthly payments. The real factors are the purchase price on which the lease is based (how does it compare to sales price if car is purchased?), residual value and interest rate.
• Negotiate as hard as if you were buying. With a closed-end lease, the higher the residual value and the lower the price and interest rate, the lower your payments. Be sure to negotiate other costs, too.
• Postpone telling the lessor (the company writing the lease) you want to lease. First, get the best possible purchase price.
• Consider carefully whether to buy at lease-end. It can be more costly than buying the car initially.
• Ask questions about any details of a lease contract that you do not understand and read the fine print.

Which is better: Buying or Leasing?

There is no single answer to this question, whatever you do is a matter of personal preference. If you weigh the pros and cons of each, compare costs and negotiate carefully, you can most likely get a good deal either way.

If you have additional questions about leasing and buying, how to compare the costs of each, or want to know current loan rates available, the experienced Loan Officers at FAIRWINDS Credit Union can provide unbiased answers to your questions.

Our concern is that you drive away with the best overall value. For assistance with all your car buying decisions call Loan Line at (407) 277-5045 or toll-free at (800) 443-6887.