How Does Leasing a Car Work?

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If you’re thinking about getting a new car, you might find that leasing a vehicle will be a better option for you than buying. Of course, if you’ve only bought cars in the past, you might not fully understand how leasing works. Fortunately, it’s relatively simple, and the information below will help you to get a firm understanding of how leasing a car works.

What Is a Car Lease?

When you lease a car, it’s similar to renting a vehicle for a much longer-term. The car lease is an agreement between the dealership and the person who will borrow the car. When you buy a vehicle, you’re paying for the entire car using cash, car loans, and trade-ins. With a lease, you’re only paying for the amount that the vehicle is expected to depreciate.
For example, if you were thinking about getting a $35,000 SUV and you buy it, you’d be responsible for paying the entire $35,000 over the course of the loan. If you were to lease the same vehicle, you’d only be paying the amount that is depreciated. In this example, it might depreciate $12,000. This would be what you would pay, along with fees and interests, over the course of the lease.
This means that when you’re leasing a vehicle, the monthly payments you have to make will generally be quite a bit lower than if you were financing the vehicle. In some cases, there will be lease-end costs, but these will be terms you discuss and negotiate at the time of leasing. At the end of the lease term, you have the option of buying the vehicle that you leased, leasing a new vehicle, or neither if you choose.

How Much Lower Could the Payment Be?

If you’re debating whether you should buy or lease a vehicle, it’s important to have a good idea of just how much you might be able to save. Let’s say you have a vehicle that you like that costs $30,000 and you put $3,000 down with no trade-in at an interest rate of 5% and 7% sales tax. You opt for a 60-month loan term. An estimate for this payment would be $549 per month.
Now, if you were to lease the same vehicle and have a $3,000 down payment with the same interest rate and sales tax, along with a 60-month lease, the payment would only be about $230 per month. This is huge savings and one of the main reasons that so many people today are looking at leases rather than financing.
Of course, you have to keep in mind that many of the same types of factors will apply when leasing as would apply when buying. For example, your credit score and the amount of money that you can put down on the vehicle will determine how much you pay, your interest rate, and whether you even qualify.

What about the Downsides of Leasing?

Although you can save a lot of money when leasing a vehicle, and you have a better chance of getting vehicles that are new and have great technology and features, there are some cons.
When leasing, you don’t own any portion of the vehicle. The title is always kept by the leasing company. Additionally, there will be certain limits on how you can use the vehicle and how many miles you can drive on it without expecting a penalty. There will also have requirements for maintenance and the condition in which the vehicle needs to be returned.
As with other types of contracts, you can’t easily break a lease without expecting some repercussions and penalties.
If you were to own your vehicle, you could always sell it. That’s not true when you’re leasing a vehicle. There are many rules by which you need to abide, and you need to be sure that the vehicle is kept in great condition.
Ultimately, you need to think about what you want from your vehicle, what you want to do with it, and whether you want to save some money on the payments. Some will find that leasing is the best option for them, while others prefer ownership.

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