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Vehicle Leasing FAQ’s : Five Basic Questions

by: sahil | last updated: March 19, 2010
Category: Lease vs. Buy | Tags: lease, car lease, vehicle leasing, car, vehicle, buying cars, buying Vs. leasing, leasing FAQ

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Vehicle Leasing FAQ’s : Five Basic Questions

There are numerous questions that come to mind when we are contemplating of buying or leasing a car or a vehicle. It can be for individual use or for business purposes; however some basic questions are applicable to both these types of leasing. Here is a compilation of some questions and their answers that may help you in deciding whether to buy a vehicle or to lease it. However, the decision involves many factors and can vary from one person to another and the circumstances along with myriad other factors.

Is leasing more beneficial than an outright purchase? - This is the most common and basic question that instantly pops up; however the answer depends on numerous factors. A business entity can easily choose leasing and especially so if it has a fleet of vehicles since it can be beneficial to lease in bulk and save money. However if an individual has to commute long distances then a lease is not a good option since many lease contracts have a clause in them which stipulates a higher amount if you cross a certain mileage limit. On the other hand, a person with steady income who likes to drive various makes of a car can easily opt for leasing a vehicle rather than buying it.

Does the lemon law apply to my lease? - The lemon law was enforced in the 1980’s in the United States in order to protect consumers from vehicle that have an inherent manufacturing defect which is not apparent while inspection at the time of purchase. Most states have extended the lemon law to vehicle or car leasing as well. However it is advisable to search on the internet if your state covers the lease under the lemon law.

How much insurance is needed for a lease contract? - The amount of insurance usually depends on the price of the vehicle; however many lessors include insurance such as GAP insurance (also called lease payoff coverage) in the lease contract itself. Gap insurance can be useful in cases if the car is stolen, totaled or destroyed very early in the lease contract. Another important point to be considered is avoiding too much insurance which is aggressively marketed and can be a hidden cost to the contract.

What is “wear and tear”? - When any machinery or vehicle is used by an individual, it undergoes normal wear and tear. For example a phone’s color may fade due regular use or a part of a car can “appear” to be used. This is normal and there would not be any problem if there is normal wear and tear. However if the wear and tear is excess then you as a lessee or consumer may have to shell out more money for the damage caused due to such wear and tear. The totaling of a vehicle due to excess wear and tear is sometimes called fatigue failure and this situation needs to be avoided for the lease to work in your favor rather than the lessors.

What are lease payments and how are they calculated? - Lease payments are the ‘rent” that you pay as a lessee to the lessor on a monthly basis. These payments are calculated by taking into consideration, factors such as residual value of the car, original price of the vehicle, the term of the lease, and the interest on the lease. The numerical method for calculating lease payments is based on aspects such as the money factor, the residual value of the vehicle and the term of the lease. The calculation of lease is complicated and entails deducting the residual value from the original worth of the automobile and dividing it into the number of months that the lease would be in force. However, the calculation does not end there because interest payments are to be added to the sum that is calculated earlier.