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Leasing Information
Introduction
Leasing vs. Buying
Types of Leases
Initial Lease Costs
Your Responsibilities
Option Rights

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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:

SECURITY DEPOSIT
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.

CAPITALIZED COST REDUCTION
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.

ACQUISITION FEES
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 lease paperwork.

SALES TAXES, 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 taxes financed.

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.

INSURANCE
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 insurance required.

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.