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If you enjoy driving a brand new car every two or three years, want lesser monthly payments, like having a car that has the latest safety features, is always under warranty, don’t care about building ownership equity, have a steady predictable lifestyle, drive an average number of miles, and properly maintain your cars, then you are a perfect candidate for an auto lease.

With the increasing cost of living, car buyers are being more challenged to find affordable financing alternatives with less disposable income available. An auto lease/loan is a wise option if you want to acquire a car but do not have enough cash in your bank account. Instead of buying a new car with a bank loan, you can opt to lease a car typically for 3 or more years.

How it works when you lease a car is the dealer sells the car to the leasing company who then leases you their car for 36, 48 or more months. You generally don’t converse with anyone at the leasing company and the dealer handles all the financing paperwork for the auto lease. The leasing company can be a bank, the car dealer, or a financing division of the car manufacturer.

The selling price to the leasing company is often termed as Capitalized Value, or Gross Cap Cost. You can lessen your monthly lease payments by reducing the cap cost. This is called cap cost reduction, and can be accomplished by haggling a lower selling price, and by putting down cash to reduce the cap cost.

In an auto lease you pay for only a part of a vehicle’s cost which is the part that you “use up” during the time you are driving it. It is often up to you to decide what size down payment. If you do not make any down payment you will have higher monthly payments which include a financial rate called money factor that is similar to the interest on a loan. You may also be required to pay fees, taxes and possibly a security deposit.

Lease payments are made up of two parts: a depreciation charge and a finance charge. The depreciation charge of each monthly payment compensates the leasing company for the part of the vehicle’s value that is lost during your lease. The finance charge is interest on the money the lease company has tied up in the car while you’re driving the car. You need not worry the percentage allocated to each as you are only making one monthly payment.