If you don't have the money to purchase a car outright, then you have two options: leasing or applying for an auto loan. Auto loans are popular because at the end of the loan, you own the car. A lease essentially allows you to borrow the car for a certain amount of time, so you never actually own the vehicle. Ownership aside, there are a few major benefits to leasing a vehicle.
No Down Payment
A typical down payment for a new car is usually 20 percent, and that can mean $3,000 or more out of your pocket. As long as your credit score is good, which is typically a score above 620, leasing a car usually doesn't require a down payment, although you can still elect to do so if you want lower monthly payments. If you have poor credit, the finance company may require you to put something down. The amount depends on how poor your credit is.
Lower Monthly Payments
If you want lower monthly payments, then leasing a car is definitely the way to go. You only pay the depreciation cost plus interest, whereas you pay the entire price of the car plus interest when you buy a car. For example, if you lease a $25,000 car for 36 months, and the estimated resale value is $12,000 after 36 months, then you will only pay the depreciation cost of $13,000 plus interest. If you bought a car for the same price, you are responsible for the entire $25,000 plus any interest owed.
Driving a New Car
Leasing allows you to drive a new car every two to three years, depending on how long your lease term is for. If your lease is for 36 months, you turn the car back into the dealership at the end of 36 months and you can lease a new car. If you often get tired of your vehicle after a few years and enjoy new technology and features, then leasing a car is the way to go.
Miles Driven Per Year
Most lease agreements stipulate that you are only allowed to drive a certain number of miles per year, typically 12,000 to 15,000. If you go over your allotted number of miles, you must pay additional money that's determined by your lease agreement. Some leases do not have a miles restriction, but most do. If you drive long distances every week, then you can often work something out with the finance company to allow for more miles per year, although you'll pay more per month.
Downside
The downside to leasing a car is that you never actually own the car. Long-term leasing is always more expensive than buying a car outright. For example, if you lease two cars for the $25,000 each, you're going to pay more in the end than if you bought a car for $25,000.
Tips
The ideal length to lease a car is 36 months, according to Edmunds.com. Most warranties last 36 months, and during that time you typically won't have to fork up too much money for repairs and maintenance, only the occasional oil change and tire rotation. If you lease a used car, then you're typically going to have to put more money into repairs and maintenance than if you lease a new car.
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