|Initial Lease Costs
Before signing a
lease, you are entitled by law to know the charges that
will be assessed "upfront" at the initiation of
the lease agreement. These usually include the following:
Not unlike the kind required when renting an apartment,
this is to make money available to the lessor should you
owe money at the end of the lease or fail to make
payments as agreed during its term. It can also be used
to cover past-due charges or payments, excess wear and
tear or damage to the vehicle, excess mileage charges, or
an end-of-lease payment. If you fulfill all the terms of
your lease, the lessor must return it in its entirety.
FIRST & LAST
LEASE PAYMENTS IN ADVANCE
Sometimes the first and the last payments are required at
the beginning of the lease term in addition to a security
deposit. If you have a good credit rating, the lessor may
not require the last payment until the end of the lease.
Unlike a loan, lease payments are always made in advance,
not in arrears.
Basically, you may have the opportunity to lower your
monthly lease payment by making a one-time payment to
reduce the car's "initial capitalized cost."
The capitalized cost is the total cost of the vehicle,
including any fee, insurance, maintenance contracts or
options you request.
As in the case of
a loan amount, the more you put down initially, the lower
the monthly payments. However, by putting down a large
amount in an attempt to reduce your monthly outlay, you
also negate one of the primary reasons for leasing-little
or no initial cash outlay. An alternative might be to
trade in your current vehicle to defray the capitalized
cost reduction amount.
You may also be required to pay "acquisition fees"
at the inception of the lease. This fee covers costs of
originating and processing the lease, costs which include
administrative functions associated with handling the
TITLES & LICENSE FEES
In most states, when buying a car with a loan or cash,
sales tax must be paid in full on the entire value of the
vehicle at the time of purchase. IN other states, you are
permitted to include taxes in the loan amount, and by
doing so you will be paying interest on the amount of
With leasing, most
states permit leases to be taxed on each monthly payment
rather than on the entire value of the vehicle. The
rationale behind this is to tax you only as you consume
the vehicle's value.
Tags, title and
license fees are the responsibility of the lessee just as
they are with a loan. These fees can be paid up front, or
included in the capitalized cost of the leased vehicle
and amortized over the life of the lease.
You must be provided all insurance requirements and
information by the lessor when entering into a leasing
contract. Either the lessor can provide the insurance (he
must disclose any cost to you) or you can provide your
own insurance through your existing insurance carrier.
Since leasing may require higher limits for insurance
coverage's than what you presently carry, you must be
informed in the lease agreement of the type and amount of
GAP insurance may
also be offered to you with a lease. Should you have an
accident and the car is totaled, GAP insurance will cover
the difference (the gap) between what is owed on the
lease contract and the amount that the primary insurer
will cover. This is most important in the early years of
a lease, when the difference between the two amounts is
greatest. GAP insurance is relatively inexpensive,
considering the peace of mind it can provide.