Leasing became popular when businesses wanted to operate automobile fleets while avoiding the high cost of ownership and maintenance. When individual leasing developed, consumers were faced with a new market question: to lease or not to lease.
Automobile leasing is not a simple matter. Cars lose value or depreciate over time. When you lease a car for two years, you are paying for two years of depreciation in monthly payments plus interest. At the end of the lease, the automobile can be either sold to you or someone else for its value at that point. When you lease, you pay to drive someone else’s vehicle. There is no ownership or equity, you simply pay for the use of the automobile. The manufacturer’s warranty covers most repairs but all maintenance costs and insurance are your responsibility.
Regulation M from the Federal Reserve Board, effective January 1, 1998, requires disclosure by leasing companies of specific information and provides consumers with a description in writing of the lease’s financial details. A model disclosure form is available. The stated purpose of the new Regulation M is to allow consumers to compare one lease with another for the same vehicle and to compare leasing a vehicle with buying it on credit. However, the disclosure requirements do not apply to lease transactions over $25,000.