Leasing a car offers consumers lots of advantages as compared to buying a car.  With a leased car, you’re able to drive a late model car with all the newest whistles and bells, every two or three years.  Your maintenance bills will be negligible (everything is covered under warranty except for regular maintenance) and your monthly payments will be lower than a purchased car.  However, before you walk into the showroom, be aware of the different lease options that are available.  That way, you can make the best decision when you actually lease that new car.

Closed-end lease
Most consumer leases are closed-end leases.  With a closed-end lease, the residual value, or the value of the vehicle at the end of the lease, is determined at the beginning of the lease.  If the actual value of the car is lower than the residual value at the end of the lease, then the lease company takes the loss.  It’s not allowed to charge the customer for the difference.   Let’s say, for example, that you lease a Ford Mustang for two years and the residual value is set at $15,000 at the beginning of the lease.  Two years later, when you’re ready to turn in the car, the value of the car is only $13,000.  You will not be responsible for paying the difference between those two prices.

Opened-end lease
With an opened-end lease, you will be responsible for paying the difference between the original residual value and the current going rate of the vehicle.  That means you would end up paying an additional $2,000 upon termination of the lease.  Opened-end leases, however, are usually used for business leases.  Before you sign any paperwork, just make sure you’re signing for a closed-end lease (unless it’s being leased through your company).

GAP insurance
Another option that you should be familiar with is the GAP insurance option.  GAP insurance basically covers you in case your leased car is stolen or totaled in an accident.  Your private car insurance will only cover the blue book value of the car; it will not cover the remaining lease balance due (lease value is often higher than the blue book value).  Most car leasing companies, however, provide GAP coverage.  If they don’t, then continue on your search.

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Categories: cars loans
Tags: homes for rent