Car leasing is a very popular method of affordable auto financing with lower monthly repayments than you would expect (and get) with a traditional type of loan. You may (or may not) be surprised to know that around 1 out of every 5 vehicles driven around in the United States these days is leased, that said, car leasing does not suit everybody, so before making the decision of whether to take out a loan to purchase a new car or enter into a car leasing agreement, you’ve gotta’ make sure that it’s the right thing for you to do.
Car Leasing – What Is It?
If you take ou ta purchasing loan you are entering into a finance plan for ownership of a vehicle, if you enter into a car leasing agreement however, you are financing the use of the vehicle for a pre-specified length of time, a specified number of months, making car leasing similar to renting but just a little bit different. The car lease is simply a formal contract between yourself and the car leasing provider, allowing you to drive their car whilst paying only a proportion of the vehicles value for a specified length of time. During that time you must pay for the other costs involved in running a car – the insurance, taxes, licenses, repairs, maintenance etc. The car is still owned by the leasing provider, and when your leasing time has expired you generally have the choice of simply returning the vehicle to the provider or purchasing the vehicle.
Benefits of Car Leasing
When compared to purchase loans, car leasing does have several benefits;
- Car leasing involves lower monthly payments that purchasing agreements
- Car leasing very often means that you can drive a more upmarket car than you would otherwise afford, and replace it with a newer model more often
- Car leasing very often involves either only a minimum down payment, or no down payment at all
- Car leasing (in most states) involves a smaller sales tax bite
- Car leasing releases you from having any used car headaches to contend with
Car Leasing Providers
You might be surprised to hear that it ain’t the car dealers who lease the cars, nope, it’s banks, financial divisions of the major automobile manufacturers and credit unions that lease cars. Dealers are just agents, acting for the lease provider and will often work with more than one car leasing provider.
The way it works is this;
- you pick the car you want
- the leasing provider buys the car from the dealer
- the car leasing provider then leases the car to you
There is another way (isn’t there always?) – you can arrange for your own car leasing finance from a bank, credit union or other financial institution after you’ve negotiated the price of a car with a car dealer. Some of these car leasing providers can even help you to get hold of vehicles at reduced prices which can help you to save even more money, plus the stress of negotiating for yourself.
Is Car Leasing Right For You
Car leasing does make a lot of sense for many people, but it ain’t for everybody. Would car leasing be a good idea for you? Here’s how to find out;
- You’ve gotta’ be willing to trade in the ownership of your car, in exchange for the lower payments each month. Saving money is always a big incentive, as is being able to drive a better car than you could normally afford, but you’ve still gotta’ be comfortable with the idea that, at the end of the agreement, the car ain’t yours . . . unless you then purchase it of course.
- You’ve also gotta’ commit to the car leasing agreement for a considerable length of time, maybe 24, 48, even 60 months. If you try to get out of a car leasing agreement early it can end up costing you dearly, so don’t get tied into something which your lifestyle, taste in cars or finances might not be able to honor.
- Car leasing agreements also have “topped out” mileages, so if you drive further than, say, 10,000 – 15,000 miles per year then you could end up being charged for every additional mile (suddenly doesn’t seem so cheap does it?) If you drive more than the specified number of miles each year then maybe car leasing isn’t for you.
- Do you look after your vehicles and keep them in top class condition? Car leasing requires you to take care of your vehicle, keeping it regularly maintained and repaired with no more than the normal amount of “wear ‘n’ tear” – if you hand the vehicle back in poor condition then you could be charged accordingly.
- What about your credit rating? If you have a good credit rating and a history of always paying bills on time without an excessive amount of debt then car leasing might be a good idea, if you don’t have a good credit rating, however, you might have to cough up a large down payment with higher monthly charges, or worse still, you might not be offered a car leasing agreement at all.
Car Leasing Fees
The chances are that there will be some sort of additional fees associated with your car leasing agreement, although these do vary between the different lease providers. You may find that you’ll have to pay an acquisition charge (kind of an administration fee for setting up the car leasing agreement), plus maybe a disposition fee, although this is often charged at the end of the car leasing period. So, what might you have to find at the beginning of the car leasing agreement, your first payment will probably include;
- the first months car leasing payment
- a security deposit
- a down payment (if any is required in the terms of the car leasing agreement)
- miscellaneous fees associated with the vehicle registration etc
- you’ll also have to show proof of vehicle insurance before you’re permitted to take it out on the road