Auto Leases: Windfall or Pitfall?

I am quickly approaching the end of my first auto lease. I thought, when I signed the lease, that I fully understood with whom I was getting into bed. During the process, I have realized I didn't know everything. Let me share the 411 with you in case you have never leased a vehicle and are considering it in order to take advantage of the great deals the auto industry is offering right now.

When you finance a car for purchase, you usually put down an initial payment and then pay the cost of the car, plus an agreed interest rate, over the course of 36-72 months until the balance is paid. At the end of the term, the car belongs to you. A purchase works well if you plan to keep an automobile long term such as 6 years or more.

With a lease, you also usually shell out a down payment but you are not actually purchasing the car. The payment you make every month gives you access to car for a certain term, usually 36-48 months, and goes towards the depreciation of the vehicle's value. A lease works well for people who like to trade cars every 3-4 years. You usually can obtain a model for a lower monthly payment with a lease than you would to finance the purchase of the same vehicle, giving you more car for the same money.

There are a couple of things that may surprise you at the end of your lease, however. You agree to pay a certain fee per mile, usually over a maximum of 10,000-12,000 miles per year. If you burn up the streets during your lease and your tires aren't at least at a minimum tread depth, you must either replace the tires or shell out some cash. Any small, minor dings are usually considered normal wear and tear but dents and larger dings from the dreaded shopping cart collision or other calamities will add up on your final bill, which you will receive about 30 days after your relinquish your wheels.

There is also usually a termination fee at the end of your lease, which usually runs about one month's lease payment. If you are loyal to one brand, the dealer may waive your termination fee when you buy or lease a new model with them, sometimes even damages and other charges but don't always count on it. With the facts laid out on the table, you can make an educated decision when weighing a purchase versus a lease.