1. Should I lease or buy?

If your prime consideration is getting the best deal for your money, buying a slightly used car is probably the best bet. Leasing allows someone with financial resources to be able to drive a new car without actually purchasing one or for someone with no money for a down payment to access a new car. The choice will depend on your economic resources and personal desires.

2. How about leasing a used car?

Leasing a used car helps you avoid the one main drawback of leasing a new car - having to pay for the huge drop in depreciation which occurs in a car's first year. However because used cars have more problems and some aren’t covered by a warranty, used car leasing hasn't yet become very popular. If you can come up with the money, the best bet is to buy a used car and then save your money to buy or lease a new car in the future.

3. What is an open ended lease?

An open ended lease means that the car will most likely be sold at the end of the lease term, and the leasee - you - will have to pay the difference between the market price and the residual (which is what you and the leasing company agreed the car would be worth at the end of the lease term). Because of the potential for having to make a large financial payment after the lease ends, most people prefer closed end leases these days.

4. How about a closed end lease?

Most leases these days leave the leasee free and clear after the lease term is up. The driver has no obligation to buy the car or pay the leasing company anything besides wear and tear fees and perhaps other charges agreed upon on the outset of the lease.

5. Can I give a leased car back anytime I want?

With most leases, yes, but you'll pay big bucks. Sometimes the lease will require you to make all of the remaining monthly payments or other penalty fees. Basically, a lease lasts as long as the lease term specifies.

6. Is there a limit on how much I can drive a leased car?

The only limit is how much you are willing to pay in excess mileage fees. Since these are agreed upon ahead of time, you'll know when you are driving too much. Most leases allow 12,000 or 15,000 miles a year, and then charge a certain amount per mile in excess of the limit.

7. Should I trade in my current car when I lease a new one?

Trade ins usually do not get you top dollar for your car, but it does save the hassle of selling the car yourself. What you don't want to do is tell the dealer that you are planning to trade in your current car until after you've negotiated the price of the car. Sometimes the dollar amount of the trade in gets lost during negotiations, and you end up paying the same as if you had no car to trade in. Most importantly, know before negotiating how much your trade in is worth by checking the blue book value.

8. What is a Cap Reduction Fee?

Like a down payment when buying a car, a cap reduction fee is paid up front before driving the car home. Since a leased car's residual (the amount the car is worth at the end of the lease) is predetermined, it is best to pay as much as possible up front and then less in monthly payments.

8. How much of a down payment should I make?

In general, the bigger the cap reduction fee paid, the better. This will lower payments and other costs.

9. What is the finance rate for a leased car?

Every leasing company will have a different rate, and in most cases it will pay to shop around.

11. How come depreciation is such a big deal?

Depreciation is the amount the car is worth between the day you drive it off the lot and the day you bring it back. With a lease, the depreciation is basically the cost of the lease. A car that depreciates a lot will cost you more to lease. Some cars keep their value better and thus make a better car to lease.

12. How is the residual figured out?

Leasing companies use various methods to figure this out, but it basically is determined by the resale value of the car.

13. Can I lease a car for just one year?

Anything is possible, but shorter leases are generally not as good as longer ones. The reason is that a new car depreciates the most in the first two years, so a short lease is generally more expensive bottom line.

14. Are those "0 down payment" ads believable?

Such ads might make a potential leasee think he can drive away a new car without paying anything up front, but it is hard to get off a lot without paying something. Leases usually don't involve a down payment, but there are plenty of other up front fees such as the cap reduction cost, taxes, and other fees.

15. What is a disposition fee?

This is a fee the leasing company charges the leasee to take back the car when the lease term is up. Good negotiators will get this fee waived before leasing a car.

16. What happens if I get in an accident with a leased car?

This is why gap insurance was created. The situation isn't much different than with a car you own, but problems occur when the insurance company thinks the car is worth less than the lease says the car is worth. Gap insurance makes up for this discrepancy, and often the leasing company will waive this fee.

17. Who pays for the insurance on a leased car?

Just like when you buy a car, the person leasing needs to have adequate insurance. However, check with your insurance company first, since many leases require a person to have more insurance most driver's carry. This is one of the hidden costs associated with leasing.

18. After the lease is over, do I have to make any other payments?

Besides wear and tear fees, most closed end leases mean the leasee has no obligations when the lease term is up. With an open ended lease there more than likely will be other charges.

19. Who owns the car that I am leasing - me or the dealer?

In most cases, neither. The leasing company leases you the car, and even when you lease at a car dealer location, it is a leasing company that usually holds the pink slip. In every other sense though, you the driver own the car, and you need to have insurance and pay for repairs not covered by the warranty just like any other car you might own. The benefit is that you should only be driving the car during its problem free days, before the warranty expires and the car is on its last legs.

20. How popular is leasing?

Low monthly payments and low up front fees made leasing the choice of almost six million US drivers in 1997. While perhaps not always making the best economic sense for some drivers, the popularity of leasing is expected to continue to expand.