For many years the choice of car loan options were pretty limited. Times have changed. There are now many more options for car loans on the market. Auto leasing is rapidly becoming the most popular route to driving a new car.

Auto Lease terms are usually quoted over 36 or 48 months. Occasionally you will see auto leases for 24 months and up to 60 months.

As the name suggests, when taking out an auto lease you do not actually own the car. The leasing company owns the car and then leases it to you. Once the lease has expired you return the vehicle. If you are within your agreed mileage target and the car has suffered no worse than normal wear and tear then you can simply work away the debt.

Then lease company can sell the vehicle at the end of your contract as you do not own the vehicle. Your payments therefore depend on the difference between the buying price and the selling price. Lease companies take their time and put a lot of effort into ensuring that they have a good idea of exactly how much each vehicle in their fleet will be worth at the end of the lease agreement.

This is how it works. You settle a deal to purchase a new car for £12,000. You enter into a deal for the lease company to purchase the vehicle and then lease it back to you. The deal is for 36 months with 10,000 miles per year mileage allowance. The lease company determines the likely remaining value to be £7,000. The actual cost to the lease company is £8,000 plus expenses and profit margin.

Your auto leasing finance options are based on the £7,000 that the leasing company is covering. Even with the lease company’s administration and finance costs your monthly charges are going to be a more reasonable if you were financing the whole purchase price.

Not only are your monthly rates a lower rate but your upfront deposit is to be in no doubt lower too.

Earlier on in the article we mentioned residual value well that gets interesting towards the end of the lease period. Auto lease companies usually set this at the low end of expectations. If you stay within the terms of your lease it’s pretty much certain that that the car will be worth more than the residual value. This means you have 3 choices:

1. Buy the car for the agreed residual value

2. Part exchange the car and use the extra value as the deposit on your next lease vehicle.

3. Give the keys back and follow your mission in life.

The most recurrent option taken by auto lease customers seems to be to part exchange and use the difference as the deposit on the next car.

The downside to auto leasing is that inevitably it will be a lot more expensive than purchasing a new car.

Most people who chose the auto lease option are likely to be financially stable and have busy lives. Thus giving them the easier choice of borrowing the car when it is most needed instead of purchasing a car.

Auto leases are more likely to work for people who have stable lives. It is virtually impossible to get out of a lease deal early and in most cases will have to stick to the long contracted terms of agreement written in the contract and excess mileage charges can be substantial. Auto leasing is a great opportunity for the right people to drive a new car every three years.