If you want a new vehicle, you have three main options: buy, lease, or finance. For most people, buying the car outright is not feasible. This leaves the options of financing or leasing. Financing a vehicle means taking out a loan to buy the car outright and making monthly payments. Leasing, however, is when you pay for the use of a car without ever owning it. This article will discuss everything you need to know about car lease.
What Is a Vehicle Lease?
A vehicle lease is an agreement between a car owner, or lessor, and the person leasing the car, known as a lessee. The lessee agrees to use the car for a certain period in exchange for monthly payments. At the end of the lease term, the lessee must return the vehicle to the lessor. There are a few benefits to leasing a vehicle:
- Lower monthly payments: When you lease a car, your monthly payments will be lower than if you financed it. The reason for this is that you are only paying for the use of the car and not the entire cost of buying it outright.
- Flexible terms: Lease terms can usually range anywhere from 12 to 60 months, so you can pick a lease length that works best for your budget.
- Easy to upgrade: Leasing makes it easier to get a new car every few years. You can simply return the vehicle and sign a new lease on a different model when the lease is up.
However, leasing is on the decline in the wake of soaring car prices and unfavorable lease terms and conditions.
Why Would Someone Lease Instead of Buy?
Financing a car typically means higher monthly payments, plus interest on top of that. It also means that you will own the car at the end of the loan term. There are a few reasons someone might choose to lease a vehicle instead of buying it outright.
- They don’t want to bear responsibility for the depreciation: Cars lose 9% to 11% of their value as soon as they are driven off the lot. Leasing allows someone to avoid bearing responsibility for this depreciation, as they will simply be returning the car at the end of the lease term.
- The buyer doesn’t have a down payment: When you finance a vehicle, you need to make a down payment to get approved for the loan. You can do this when you lease as well, but it is not always required.
- Lower monthly payments are appealing to them: Leasing typically means lower monthly payments than financing, since you are only paying for the use of the car and not for ownership.
- Every few years, they like to get a new car: Leasing makes it easy to upgrade your car every few years, since you can simply return the lease and sign a new one on a different model at the end of your lease term.
It is also worth noting that many people buy their car after their lease term, as they enjoy having the car and don’t want to part with it. In this case, leasing a car is a good way to see if you can own it in the future before committing to a purchase.
What Should You Know Before Signing a Lease?
While leasing can be an attractive option, there are still some things you should consider before signing a lease agreement.
1. Read the fine print
Make sure you read and understand all of the terms and conditions of your lease agreement beforehand. This includes everything from what type of maintenance is required to how much you’ll need to pay in early termination fees.
Not all lease terms are favorable, especially in recent years. Since salespeople and dealerships make more money off of leases, they often have more control over lease terms and may attempt to add hidden fees that are not in your best interest. To get a better idea of how much you’ll end up paying, it is best to use a lease calculator to estimate the total cost of your lease.
2. Understand the mileage restrictions
Most leases come with a certain number of miles you can drive each year without incurring extra charges, usually between 10,000 to 15,000 miles per year. If you end up driving more than this, you’ll have to pay a fee for each additional mile. These miles can quickly add up to hundreds or thousands of dollars, meaning you may want to consider a higher mileage limit if you plan on doing a lot of driving.
3. Understand the wear and tear restrictions
Leases also come with certain restrictions on how much “wear and tear” is allowed on the car before it needs to be returned. If there are any scratches or dents that exceed the normal wear and tear, you will certainly be charged for them when returning the car.
This also goes for significant damage to your vehicle; if you end up in an accident, you will need to pay to fix it before your lease is up. Car owners can wait and save up for these types of repairs, whereas leased car owners will have to pay them off as soon as possible.
4. Know how much you can purchase it for
In addition to knowing how to lease a car, you’ll want to know how to value it. At the end of your lease term, you have the option of buying the car if you want to keep it. This means that you will have the option to make an end of auto lease purchase.
At the end of your lease, you may have equity in the car if its value has gone up or if the anticipated depreciation is less than the actual. This means that you can purchase your car with the equity value as a down payment or as payment toward the purchase price.
Leasing a car can be an attractive option for those who want a lower monthly payment, the ability to upgrade their car every few years, or even purchase the vehicle after their lease term. Just make sure you know all of the terms and conditions before signing a lease agreement so that you don’t end up paying more than you bargained for.