A car lease is a contract between a leasing company affiliated with a dealership and you, in which you agree to several terms and conditions, including monthly payments, in exchange for the use of a new or used car. In addition to all the decisions that normally go into buying or leasing a car, certain additional factors must be considered when a car lease is up.
Basics
Basic lease concepts include capitalized cost, residual value, lease length and the money factor. The vehicle price is the capitalized cost and the residual value is the car value at the end of the lease. The money factor multiplied by 2,400 is the lease interest rate. Most leases are closed-end leases or "walk-away" leases where your obligations end once the lease ends except for certain additional costs such as excess mileage and wear and tear.
Facts
Most lease terms limit the number of miles driven per year. According to Automotive.com, this can range from 12,000 to 15,000 miles per year. Miles over the limit are charged an excess mileage rate of about 10 to 15 cents per mile. The dealer will also inspect the vehicle for wear and tear and may charge additional fees. Measures such as washing and detailing the car, servicing it regularly and staying within the mileage limit can save additional charges when returning a vehicle at the end of a lease.
Decision
You have to decide at the end of a lease -- buy vs. lease, new vs. used. Used cars cost less, but new cars under warranty do not require major repair expenses. Leasing usually means lower monthly payments, but lease terms place restrictions. A car owner has no restrictions, although the value of the car is still affected by mileage and wear and tear. Examine your own financial situation: For example, if your credit scores are impaired for whatever reason, you may not be able to obtain lease financing, so your only option might be to buy a used car. If budgets are tight, waiting for dealer lease or purchase promotions, such as zero down or zero interest, might be the preferred option. If you are using the car for business purposes, leasing might offer certain tax advantages in terms of allowable deductions. If the residual value is low enough and the car is in good shape, buying the car at the end of the lease might represent the best value for both you and the dealer.
Considerations
Getting out of lease contracts is not easy, but it is possible. For example, Philip Reed of Edmunds.com suggests that you find a creditworthy person to assume the remainder of your lease contract. Several fee-based websites, such as LeaseTrader.com, match people looking for short-term leases with those wanting to get out of leases. You can also try to sell the car and pay off the leasing company. However, simply walking away from a lease is not a good option because it is a negative on your credit report.
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