For those who don't want to commit to a lengthy car loan, leasing a car is a common alternative. A car lease is a legal agreement that allows you to drive a brand-new vehicle for a specified period of time before returning it to the leasing company or dealership. A car lease entails making periodic payments throughout the leasing term and at the end of the term, not having ownership of the vehicle.
What is a Car Lease?
A car lease is an agreement that allows you to drive a new vehicle for a predetermined amount of time, usually three years, before returning it to the dealership. Monthly payments are required, and if you don't want to return the vehicle at the end of the lease term, you'll have the option to buy it.
There are mileage limits that if exceeded, you'll be charged for. When the contract begins, you must make a payment. When the contract expires, you must make additional payments, including a disposition charge.
Essentially, a lease enables you to rent a car for an extended period of time as opposed to purchasing one. However, there are a few expenses associated with the start and termination of the contract.
How Does Car Leasing Work?
You need to understand how leasing works before deciding whether it is the best option for you. A car is purchased by a dealer or leasing firm, and you then agree to pay for the time you spend using the vehicle.
You will continue to pay the leasing company or dealership on a regular basis throughout the lease. Your payments will be lower than they would be if you had purchased the car with a loan because you aren't paying down the entire cost of the vehicle. You'll return the vehicle to the leasing firm at the end of the term. You'll probably pay the residual value if you choose to purchase the vehicle. The leasing contract specifies the buyout price, which is established in advance.
There are additional fees if you break the rules of your lease. For instance, you may be required to pay a costly fee if you exceed the predetermined mileage limit. If the vehicle has damage that goes above what is permitted, you will additionally be charged an excess wear and tear fee.
Pros of Leasing a Car
Lower monthly payments: Because you’re only paying for the vehicle while you’re using it rather than the full price of the vehicle, you’ll have smaller monthly payments.
Ability to upgrade to a newer car: Since most car lease terms are only 3 years long, you’ll have the ability to upgrade to a newer car more often.
Covered for maintenance and repairs: Most lease agreement terms cover any costs associated with maintenance or repairs.
Cons of Leasing a Car
Mileage limit: You need to be careful not to exceed your determined mileage limit in order to avoid potential fees.
No equity in the vehicle: Unlike a car loan, when the lease term ends you don’t have ownership of the vehicle to either stop making payments or trade into a dealership to put towards your next vehicle.
Additional fees: If the vehicle exceeds wear and tear that the dealership considers reasonable, you will be subject to additional fees.
The Difference Between a Car Loan and a Car Lease
A car lease is a lengthy rental where you are making payments to use the vehicle. With a car loan, you borrow money from a lender for a set length of time, after which you become the owner of the vehicle.
With a car loan, you can gradually pay off the debt. With a lease, all you are paying for is the time while you are using the vehicle with a limit on mileage. If you choose to keep the car after the lease expires, you can buy out your lease rather than returning it to the dealer. You will need insurance whether you lease or buy.
