What Is a Car Lease?

Leasing a car implies that you are renting a car from a bank for a limited time i.e., 2, 3 or 4 years. Once the period of lease finishes, you have two options: return the car to the dealer or buy it at a pre-determined amount. Talking in terms of price, lease payments are lower compared to the monthly loan payments when buying a new vehicle.

Monthly car loan payments are computed based on the following:

  • The sale price,
  • The number of months, and
  • The interest rate

On the other hand, lease payments are computed based on the following:

  • Sale Price
  • Duration of the lease term
  • Annual Expected mileage/ number of miles that you can drive
  • Residual Value
  • Taxes and Fees

Lease A Car Direct has an informative blog that educates the users about car buying vs car leasing. They also explain the common car leasing mistakes that a buyer should know.

When Should You Choose to Lease a Car?

Leasing is the option when you wish to drive a brand-new car every couple of years. In such cases, when leasing a car for 24 or 36 months you able to get in to a new car every 2 to 3 years.

When these charges are greater than the principle, it is beneficial to go for a car buying process. However, if you wish for low monthly payments and a new vehicle every few years, then leasing is a good decision.

Benefits of Leasing

  • Leasing a car is tempting because monthly payments are quite low.
  • This method of getting a car lets you drive the vehicle when it is new or when the chances of repair and maintenance are low.
  • The model is covered under the manufacturer’s warranty that includes free of cost servicing, oil changes, and other maintenance services.
  • There is fixed monthly lease payment with no sudden repair costs.
  • You can drive high-end vehicles with better lifesaving safety features that you may not be able to afford.
  • No fluctuations in the trade-in value of the car or the trouble of selling it.
  • You can obtain significant tax benefits.

Drawbacks of Leasing a Car

  • At the end of the lease term you will need to return your car with no equity expectations.
  • If you rent one car after another, then monthly payments will continue for the entire life. In the long term context, buying a car is cheaper than leasing it.
  • Lease contracts offer restricted mileage. If a person goes beyond the limit, then they will need to pay for extra miles.
  • Failing to maintain the car in good condition can incur repair charges at the time you return it.
  • Within the lease term, you do not want to keep the car or afford the monthly lease payments, then breaching the contract can cost you a lot.

Conclusion

Leasing a car is a great option for those who wish to own a car only for a limited period. It is also a good option for those who do not want to make a lump sum one-time payment.

Also, the best deals for car leasing are available to people who have superb credit. Considering the above pros and cons of each of these methods will help you make the best decision.