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Automobile Leasing

In: Business and Management

Submitted By maryca61
Words 796
Pages 4
Hello,
A car purchase of lease is one that will be a depreciating cost no matter the choice. Buying a car is great but lets take a good look at the misconception and mistakes of buying versus leasing. When you buy a car one usually finances the contract for the car for at least sixty months. Yes I am buying the car but I must maintain the car with general maintenance ( which is not always included in the initial price of the car ). Then it usually takes at least forty eight months to gain equity for the depreciating asset. This is a rule of thumb used by the car dealers and the lenders. This is why using zero down payments always puts the buyer in a negative equity situation for the duration of a long period of time. One would ask what is the big deal? The big deal is that you are stuck with the car in the negative equity situation and can not trade or attempt to trade because of the negative equity situation. You can trade but once again the wallet will suffer as one will need a substantial down payment. There is also variables to consider of the depreciation of the car as the miles put on it and the overall shape of the car when trading.

Leasing is a viable option for few as the credit rating for the consumer to lease must be outstanding and usually have a score of 750 as a rule. The irony of the market is that only eight percent according to the National Automobile Association qualify. You do not take the risk of depreciation and the bank is the owner and takes all the risk. Your payment is based on a formula of depreciation guaranteed by the bank and is referred to as the residual value. Much is considered when figuring the residual and the overall major factor is the mileage limitation set forth in the lease. Once can only go for example twelve thousand miles per year and any over involves a fee for each mile. This can become tricky if one is not cognizant

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