People who need a car to get around have two major options. They can buy a vehicle, or they can lease one. Leasing gives you a vehicle temporarily and doesn't require you to commit to ownership. To decide if leasing is best for you, you must understand what it involves.
Leasing Basics
Leasing a car means that you make payments toward the use of the vehicle. You don't make payments toward ownership. Although leasing a car is similar to renting, leasing is a form of financing -- renting is not.
Return of Vehicle
When you lease a vehicle, you make payments toward the use of the vehicle for a short period of time, usually two or three years. After the lease period is up, you must return the vehicle, renew the lease or purchase the vehicle by paying the depreciated value. Most people opt to return the vehicle because then they can get a lease on a newer model that doesn't have as much wear and tear.
Payments
As with a car purchase loan, you make payments on a car lease every month. To decide how much your payment will be, the leasing company figures out how much the vehicle will depreciate during your lease period -- this is the value of the use of the car. They then calculate a finance charge, which generally is interest. There also may be other fees involved, depending on the lease contract, but most of those fees are due upfront. The lease company then subtracts your down payment from the total of these figures. Then they divide the result by the number of months in your lease, giving you your monthly payment amount. Because you are paying only a portion of the value of the car -- the portion you'll use -- leasing generally is cheaper per month than financing a car loan.
Advantages and Disadvantages
Because leasing companies typically offer new vehicles, you usually don't have to worry about maintenance. You also have flexibility; if you want a different vehicle, you easily can get a different one at the end of the lease. The lower payments often are easier on a tight budget, but in the long term, leasing is more expensive. Because you don't own the car, you can't make modifications to the vehicle, and you may have to have more comprehensive insurance coverage, which is more expensive. Because most leases only last two or three years, you have to deal with leasing companies and contracts more often, and the terms of every lease can vary. Payments can fluctuate from lease to lease depending on the value of the car you select and your credit score. Many leases have restrictions, such as limiting you to a certain number of miles.
0 comments:
Post a Comment