There are two types of leases: Closed-end and open-end

    A closed-end lease, frequently referred to as a "walk-away" lease, is the most widespread lease today. This type of lease allows you to simply return your vehicle at the end of the lease and the transaction is concluded.

    At the time you sign your lease, there is an estimate of the vehicle's lease-end residual value and, if the vehicle is actually worth less than the residual when you return it, the leasing company takes the loss, not you. If the vehicle is worth more than the residual value, and you have the option to purchase the vehicle, you may want to sell the car and make a profit. This happens frequently.

    An open-end lease is typically used for commercial business leasing. In this instance, you the individual consumer, rather than the leasing company, assume the risks. You are responsible for paying any difference between the estimated lease-end value and the actual market value at the end of the lease. Ultimately, this could be costly if the fair market value of your vehicle has dropped substantially.

Advantages to leasing

Lower Monthly Payments

    Because you are only paying for the portion of the car or truck that you actually use, your monthly payments are approximately 30% to 60% lower than for a purchase loan of the same term.

New Cars more often

    Since your monthly payments are significantly lower, you will be able to secure more car for your money and drive a brand new vehicle every two to four years, depending upon the length of your lease.

Lower Up-Front Cash Outlay

    Most leases require little or no down payment, which makes acquiring a new vehicle more affordable and frees up your cash for other things. Furthermore, in most states you are not required to pay a large, up-front sales tax when you lease.

Simple

    With leasing, the headaches associated with selling a used car are virtually eliminated. When your lease ends, you simply return your vehicle to the leasing company and walk away, unless you opt to purchase it.

Things to consider prior to leasing

Is there a possibility that you may want to end your lease early?

    Lease contracts are intentionally written to discourage, even prevent, early termination. To do so typically means you are legally liable for a compulsory termination penalty as well as all outstanding payments. Therefore, if you intend to lease a vehicle, you should maintain a stable lifestyle and work situation in order to minimize the possibility of needing to terminate early. Wanting or needing to end a lease prematurely is the most widespread problem associated with leasing.

Do you ordinarily drive your automobiles more than 15,000 miles a year?

    Lease contracts restrict the number of miles you can drive to 12,000 to 15,000 miles per year. If you exceed that limit, you are assessed with "excess mileage" charges at the end of the lease. These can be substantial for even modest mileage overages. Sometimes, higher mileage limits - if you know you will be driving more - can be "bought" at a lower cost at the time you sign the lease.

Do you abuse your automobiles or fail to keep them in good condition?

    Leasing companies require that you return their vehicles at the end of their leases with no more than "normal" wear and tear. If you exceed what they deem as reasonable, you will incur additional charges. You are responsible for providing insurance and regularly scheduled maintenance for your vehicle, comparable to that required for a purchased vehicle. The leasing company has no liability in this regard.

Do you think you might want to customize, modify, or repaint your automobile?

    Keep in mind, a leased automobile does not belong to you; it belongs to the leasing company. Therefore, if you elect to customize or make modifications to your vehicle, you will probably be responsible for all costs associated with restoring it to its original condition.

Do you like paying off your loans and driving your automobiles until the wheels fall off?

    One of the primary benefits of leasing a vehicle is that it enables you to drive a new car every two, three, or four years. However, you must take into consideration you will be making payments on your vehicles continually. To many people, this is an acceptable trade-off considering the benefit derived from always driving a new vehicle that is under warranty. Irregardless, you have the option of purchasing your vehicle at the end of the lease, if you really want to get a respite from your payments.