Leasing Costs and Terms

Leasing Costs and Terms


Leasing gives you temporary use of property in return for
periodic payments. It has become a popular alternative to
buying--under certain circumstances. For instance, you might
consider leasing furniture for an apartment you'll use only for
a year. The Consumer Leasing law requires leasing companies to
give you the facts about the costs and terms of their
contracts, to help you decide whether leasing is a good idea.

The law applies to personal property leased to you for
more than four months for personal, family, or household use.
It covers, for example, long-term rentals of cars, furniture,
and appliances, but not daily car rentals or leases for
apartments.

Before you agree to a lease, the leasing company must give
you a written statement of costs, including the amount of any
security deposit, the amount of your monthly payments, and the
amount you must pay for licensing, registration, taxes, and
maintenance.

The company must also give you a written statement about
terms, including any insurance you need, any guarantees,
information about who is responsible for servicing the
property, any standards for its wear and tear, and whether or
not you have an option to buy the property.


Open-end Leases and Balloon Payments


Your costs will depend on whether you choose an open-end
lease or a closed-end lease. Open-end leases usually mean lower
monthly payments than closed-end leases, but you may owe a
large extra payment--often called a balloon payment--based on
the value of the property when you return it.

Suppose you lease a car under a three-year open-end lease.
The leasing company estimates the car will be worth $4,000
after three years of normal use. If you bring back the car in a
condition that makes it worth only $3,500, you may owe a
balloon payment of $500.

The leasing company must tell you whether you may owe a
balloon payment and how it will be calculated. You should also
know that:

-- you have the right to an independent appraisal of the
property's worth at the end of the lease. You must pay the
appraiser's fee, however.

-- a balloon payment is usually limited to no more than three
times the average monthly payment. If your monthly payment
is $ 200, your balloon payment wouldn't be more than
$600--unless, for example, the property has received more
than average wear and tear (for instance, if you drove a
car more than average mileage).

Closed-end leases usually have higher monthly payment than
open-end leases, but there is no balloon payment at the end of
the lease.