When you lease a car, the leasing bank owns the vehicle, not you. You must pay to insure it, but even so, your bank is entitled to any insurance payoff of your leased vehicle. You may choose to purchase your vehicle from the leasing bank at any time if you want to own it outright.
Lease Process
When you lease a vehicle, the leasing bank purchases the vehicle from the dealer and then leases it to you. Your dealership acts as a go-between for you and the bank. While you do most of your business with the dealer, the payment for the car is arranged between the bank and the dealer. In fact, unless you negotiate a better lease payment, the leasing bank purchases the vehicle for sticker price. The dealer follows all bank rules when leasing you a vehicle, such as obtaining a credit application, contract signatures and proof of insurance.
Purchasing the Lease
You can purchase your leased vehicle at any time during your lease contract or once your lease contract expires. If you decide you'd rather own your vehicle, call your leasing bank to obtain a purchase price. You may then apply elsewhere for the purchase amount and pay off the leasing bank once you're approved for an auto loan. Review your lease contract to find out how much the car will cost to purchase at the end of the contract, which is listed as your last payment.
Contract Provisions
Because the bank owns the vehicle, it sets the rules for your vehicle use. Lease payments are based on expected depreciation of the vehicle, which depends on the mileage you choose and the term you plan to drive the car. If you exceed your mileage allowance, your bank may charge up to 30 cents per mile. Your contract also states the amount of wear-and-tear you're allowed during the contract, which covers light vehicle wear, repair and maintenance items. If you return your vehicle needing repairs, maintenance items or exceeding the general wear-and-tear allowance, you must pay the bank for the vehicle's decrease in value.
Auto Insurance
Leasing banks also require that you continuously maintain a full-coverage insurance policy on the vehicle during the lease contract. If you do not maintain the required coverage, the leasing bank may choose to add an expensive policy to your lease account, which increases your lease payment, or repossess the vehicle. Leasing banks also require increased bodily injury and property damage limits and a lower deductible. If your vehicle is declared a loss by your insurance company because of damages or theft, your leasing bank receives the vehicle's insurance payoff. You will not receive any of your down payment amount or lease payments in return.
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