Archive for January, 2009
Often individuals turn to car leasing because of the assumed low-monthly payments. However, when you look at the various stages of car leasing, there are more “car leasing related fees” that actually meets the eye.
At the very start of the lease, the lessee will have to pay a refundable security deposit which is typically equivalent to one monthly payment. The security deposit is paid as such to safeguard the car leasing company against non-payment and any incidental damage done to the car after the end of the lease. The lessee is also required to pay the acquisition fee, otherwise known as bank fee, this is an administrative fee charged by the car leasing company. This fee is not, usually, specified explicitly in the car lease contract but this is included in the Cap Cost when calculating for the monthly payments – so make sure to ask about it if you don’t see this mentioned. There are other fees as well, such as fees for licenses, registration, title and any state or local taxes.
During the car lease, as a lessee, you are expected to honor your monthly dues; failure to do so will result in another fee in a form of late-payment charges. There are also financial obligations in the form of traffic tickets, emission and safety inspections and the ongoing maintenance costs. When the lessee at the mid-term of the lease feels he can’t deal it anymore and just wants to end the lease before the agreed term, he will then be charged with a “substantial” amount for early termination.
At the end of the lease, if you exceed the allowable mileage, expect to pay the “excess mileage charge” which can cost right about 10 to 20 a mile. Incidental damages done to the car, and deemed to be beyond what’s identified as normal, will result in “excess tear-and-wear charges”. Finally, if you choose not to purchase the vehicle, then you have to pay a disposition fee.
An operating lease enables a lessee to use a car without taking the risks associated with ownership. The ownership of the vehicle is retained by the finance provider and the lessee is provided with full use of the vehicle in return for monthly payments matched to the agreed term and mileage. At the end of the car lease term, the lessee’s obligation ends right after he returns the vehicle in good condition. In short, this is simply a rental agreement.What are the benefits of an operating lease?
- Operating lease terms usually have a 24 – 48 month range
- The fixed car lease rentals are on a single monthly invoice which allows easy budgeting
- Your working capital is maintained
- Operating lease repayments are fixed for the term
- You control vehicle maintenance and servicing
- Car lease rentals will be fully tax deductible if it is used to generate taxable income
- No resale value risk as the financier will own the vehicle at the end of the term of the operating lease.
An operating lease is best suited for vehicles largely used for business. Meaning that the car is used for business 50% or more of the time. It’s also a great option if you would need plenty of mileage per year and would like no residual risk at the end of the car lease.