Leasing a car gives you an alternative to buying the vehicle. A lease is similar to renting a vehicle long-term in that you don't actually own the car. At the end of the lease, you have the option to turn in the vehicle or purchase it. Lease payments are generally lower than the car payments would be for the same vehicle, but you should analyze all of the terms to ensure you understand the agreement.
Time Frame
The length of a lease varies depending on the terms. The minimum is typically around 2 years, but a 3-year lease is most common. A 3-year time frame works well for a lease because you will likely turn in the car at the end of the agreement. A longer lease term increases the chances of mechanical issues with the vehicle. Because most warranties on lease vehicles only last 3 years, you save yourself the worry and money for car problems that could occur if you keep the vehicle longer.
Fees
Like a car loan, a lease requires you to submit a monthly payment. This amount stays the same for the length of the lease. You pay for the taxes and registration for the vehicle when you lease it. The dealership may also require a down payment or the first month's payment upon leasing the vehicle. Total up all of the fees and monthly payments to determine how much you will end up paying over the entire term.
Mileage
A lease comes with a certain number of covered miles per year. If you go over the total number of miles allotted for the length of the lease, you pay more when you turn in the vehicle. Estimate the number of miles you will drive the vehicle in the time you will have it. Compare that number with the mileage allowed under the lease. If you estimate you will drive more, negotiate a higher amount of miles. Check on the charge for going over so you have an idea of what you might end up paying should you exceed the limit. You may also have to pay fees for excessive wear such as major dents in the body or tears in the upholstery.
Insurance Requirements
Check on the insurance requirements to fulfill your part of the lease. Since you aren't the owner of the vehicle, you must abide by the limits and type of insurance mandated by the leasing company. Gap insurance is often required. This type of insurance will cover what you still owe on the lease if that amount exceeds the value of the vehicle.
Cancellation and End-of-Lease Options
Once you sign the lease agreement, you are usually under obligation until the end of the lease. If the agreement has a cancellation option, it will likely cost you a high penalty. Read the terms carefully so you understand the consequences of ending the lease early.
Your agreement should also spell out the end-of-lease options. Most people choose to turn in the leased vehicle. The process involves an inspection of the vehicle and paying any outstanding fees. The other option is to purchase the vehicle. Your lease agreement may state a pay-off amount if you decide to purchase it.
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