What to Know About Car Leases

Leasing a car gives you the option of driving and maintaining a vehicle without actually owning it. Leasing a car is different from buying in a variety of ways including vehicle ownership, car value and upfront costs. Before leasing a vehicle, it is important to understand what is involved and how a car lease can affect you in the long run.

Description

When you lease a car, you are entering into a contract to use a vehicle for an agreed-upon number of months and miles. At the end of the lease term, you return the vehicle and pay end of lease fees and charges. Some car leases have a purchase option which gives you the option to buy the car at the end of the lease term.

Advantages

Leasing a vehicle has many advantages for the right consumer. Because you do not actually own the vehicle, your monthly payments are lower. You only pay for depreciation of the vehicle during the time you drive the car. At the end of the lease, you can walk away from the vehicle, purchase the car or lease a new car. Leasing gives you the opportunity to drive a new vehicle every two to four years which is a typical lease term.

Drawbacks

Leasing a vehicle has several drawbacks. For instance, the upfront cost of leasing a vehicle is significant. You are responsible for the first month's lease payment, security deposits, a down payment, taxes, registration and other lease fees. You will not see a return in these investments because you do not actually own the car. When you return the vehicle, the money you paid up front is essentially lost.

When you lease a vehicle, you take on many responsibilities. During the lease term, you are only allowed to drive the vehicle a limited amount of miles per year, usually between 12,000 and 15,000. If you exceed mileage limits, you must pay additional charges at the end of the lease term. Also, you have to pay additional charges if the vehicle has excessive wear when you return it.

Leasing Versus Buying

Deciding to lease a car versus buying is a matter of personal preference. When you purchase your vehicle, you get to keep it when you are done paying for it. With a lease, you have to give the car back after years of paying on the car. If you want to terminate a lease early, you are subject to early termination charges. When you buy, you are usually free to pay off your loan early.

Purchasing a vehicle means you can basically treat your vehicle however you want to without the hassle of paying additional charges for excessive wear and tear. However, excessive wear on a vehicle that is owned can significantly decrease the trade in or retail value of the car.