Auto Loan Information

Until recent years your choice of Auto Finance options was pretty limited. Times have changed. There are now hundreds of auto financing deals on the market. Auto leasing is rapidly becoming the most popular route to driving a new car.

Auto Lease terms are usually quoted over 36 or 48 months. Occasionally you will see auto leases for 24 months and up to 60 months.

As the name suggests, you don’t actually own the car when you take out an auto lease. The leasing company owns the car and then leases it to you. When the lease expires you return the vehicle. If you are within your agreed mileage target and the car has suffered no worse than normal wear and tear then you can simply work away

As you don’t own the vehicle the lease company can sell it at the end of your contract. Your payments therefore depend on the difference between the buying price and the selling price. Lease companies spend a lot of time and effort to ensure they have a good idea of exactly how much each vehicle in their fleet will be worth at the end of the lease agreement.

Here’s how it works. You negotiate a deal to buy a new car for $24,000. You enter into a deal for the lease company to buy the car and then lease it back to you. The deal is for 36 months with 10,000 miles per year mileage allowance. The lease company assesses the likely residual value to be $12,000. The actual cost to the lease company is $13,000 plus expenses and profit margin.

Your auto leasing finance options are based on the $12,000 that the leasing company is covering. Even with the lease company’s administration and finance costs you are monthly charges are going to be a lot less than if you were financing the whole purchase price.

Not only do you get lower monthly payments but your upfront deposit is certain to be lower too.

Remember that residual value mentioned earlier? Well that gets interesting at the end of the lease period. Auto lease companies usually set this at the low end of expectations. If you stay within the terms of your lease the chances are that the car will be worth more than the residual value. This means you have 3 choices:
1. Buy the car for the agreed residual value
2. Part exchange the car and use the extra value as the deposit on your next lease vehicle.
3. Give the keys back and get on with your life

The most common option taken by auto lease customers seems to be to part exchange and use the difference as the deposit on the next car.

There are downsides to auto leasing. In the long run it will always be more expensive than buying through an auto loan.

Auto leases work really well for people with stable lives. It is virtually impossible to get out of a lease deal early and excess mileage charges can be heavy. For the right people auto leasing is a great way to be able to drive a new car every 3 years or so.