Using Personal Loans to Fund Car Leasing

Wednesday, October 7th, 2009 By

Leasing a car

Would it be smart to lease a SmartCar? Image from Flikr.

Would it be smart to lease a SmartCar? Image from Flikr.

Many consumers are using personal loans to fund car leasing. But do they really understand the terms?  It’s important to understand what car leasing is, as opposed to purchasing.

Leasing a car is to buying a car what renting an apartment is to owning a property.  For a certain period of time — two, four, even five years — the customer will make payments to use the car, but never own it throughout the leasing period. There can be an option to buy the car at the end of the lease, but this needs to be understood clearly by the potential buyer.

Deciding factors

The length of the lease is very important.  Normally a car lease will last anywhere from 24 to 60 months, and that adds up to a large amount of money. Be sure to calculate out how much money is actually going to go into this vehicle and whether it’s worth it to lease instead of buy.

Also, consumers should know how many miles they are going to put on the car on average.  Companies can offer low-mile leases, standard-mile leases and high-mile leases.  Customers need to be pretty accurate when it comes to estimating how many miles they anticipate using because overages can come with heavy charges.

Normally companies charge anywhere from 7-10¢ per mile over the limit. While this doesn’t sound like much, the charges can add up to significant amounts if the overage is substantial.  For example, a low-mile lease will have a lower payment, but the mileage will be limited.  In the end, if a customer opts for this type of lease but then goes over on mileage, any savings they would have had can quickly be eaten up by the extra mile charges.  Be careful when estimating the amount of mileage used and be sure to include miles to work and back and recreational time driving into the total.

Other laws to be aware of

Any leasing company should give a detailed, written statement that cites the total consumers will be paying.  This document should cover any down payment information, registration fees and security deposits. Customers need to be sure to have a specific total so they can apply for personal loan that covers the complete amount.

Another law is that the leasing office must tell the consumer what insurance requirements are for the vehicle. Again, this amount needs to be factored into the loan amount the customer applies for.  There are also warranties to understand. Consumers need to ask about the warranty and find out exactly what it covers, and what it doesn’t cover.  They need to know who is responsible for servicing the vehicle in different scenarios.

There will also be a wear-and-tear assessment to understand. This is how a consumer knows the acceptable amount of damage the vehicle will be returned with.  Companies know that cars have normal  wear and tear issues, but they need to specify what the stipulations are.  The law states that wear and tear must be “reasonable”, but it’s up to the consumer to understand what the leasing company’s definition of reasonable is.

Car leasing made simple

Car leasing can be a solution for people who opt to not purchase.  If drivers are able to calculate how much they drive and want to change cars frequently, leasing maybe the most viable option.

Consumers have to be aware, though, that estimating the full payments is a detailed process.  If they are using a personal loan to fund the cost, this is particularly important. Leasing a car can be beneficial to drivers if they are detail-oriented and precise with  estimating cost and mileage.

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