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There were 135.7 million cars on the road in 2004 in the United States . That’s 1.2 cars for every household in the United States, not taking into account any 4 wheel drives, motorcycles or trucks! That’s an astonishing figure, but with the personal vehicle being the most popular form of land transport, it’s hardly surprising that we are using our cars to their maximum potential and having to trade them in regularly for newer models. This can be expensive, but let’s look at another method of auto financing, the auto lease.

What is an auto lease? An auto lease is not like purchasing a car using cash or an auto loan. You are simply paying to use a vehicle for a period of time, which is normally longer than 2 years.

You generally go into a dealership and take out an auto lease contract, but the car is then sold to a leasing company by the dealer. When you start making your monthly payments, your relationship is with the auto lease company, not the dealer. The dealer will have probably received a commission for passing your auto lease business over.

How does an auto lease work? An auto lease makes you pay for the estimated depreciation of the car during the period that you intend to lease it. This is made by making monthly payments to the auto lease company. You are also expected to pay for your insurance and any vehicle taxing required and when the auto lease contract expires you simply hand the car back. If the car is damaged or you have traveled more miles than your contract allowed, you may have to pay additional charges.

Can I extend the auto lease? This is an option open to you, but you should weigh up whether it would be most cost effective to trade this auto lease car in for a new lease car. It totally depends if you have any equity in your current car that you don’t want to surrender to the lease company.

Can I buy the car at the end of the auto lease? You may be allowed to buy the car; it depends totally on the leasing company again. You may want to pose this question before signing the lease agreement if this is an option you would like to consider.

So, if you like the flexibility of an auto lease rather than being lumbered with an autoloan for a car that depreciates in value throughout the loan contract, this could be an opportunity for you. It is wise to weigh up your entire auto financing options before taking the plunge but considering the rapid increase in auto lease popularity in America; this may be a way of having a car that you couldn’t necessarily afford using conventional financing methods.


This Financial Services article was written by David Siu on 8/26/2006

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