How car leasing works

Jun28
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If we’ve answered your question on what is auto leasing, let’s know look at how it works. The more confident you are knowing the details and understanding how auto leasing works, the better equipped you’ll be when you make your lease decision.

Those who choose not to educate themselves first on leasing, will make themselves prone to losing out on a good lease deal, how to calculate lease payments – your monthly expense, and the info you should know when negotiating a lease agreement. The end result may cost you some serious costly mistakes and the possibility of feeling cheated. So like anything new that you’re investing into – do your homework and educate yourself.

You’re first step to understanding how leasing works, is to know that you must know the basics, the fundamentals of auto leasing, and this is what you’ll find here.

Once you have a firm grip on the what is auto leasing, you should understand the pros and cons of  auto leasing. This will help you understand if auto leasing is right for you. Later we’ll also look at a car lease calculator to figure out the monthly costs of leasing a car.

Advantages of Leasing a Car

  • Less monthly payments
  • Less down payment
  • Allows you to drive a higher-end vehicle, or better car, for less $$ every month
  •  Maintenance – Wear & tear. Leasing will offer lower repair costs (with a three-year lease, the factory warranty covers most vehicle maintenance repairs)
  • Every few years you have the luxury to get into a new vehicle by ending your lease at the lease agreement lease-end, or by terminating a lease early.
  • Many auto lease agreements will allow you to transfer any existing auto lease to another individual – whereby they take over your car lease for the remainder of the lease contractual term, commonly known as a short term lease. The process to transfer a lease is a lease assumption, or swap a lease.
  • No trade-in hassles at the end of the lease
  • Taxes: Consumers only pay the tax for the portion of the vehicle they finance

Disadvantages of Leasing

  • Unlike buying, at the end of the lease you don’t own the car
  • Vehicle mileage is limited. Exceed the mileage in the lease agreement and you’ll be subject to pay the specific costs.
  • Auto lease contracts can be confusing
  • Long term, auto leasing is more expensive than buying
  • Vehicle maintenance and wear and tear costs can add up, depending on how well you maintain the vehicle.
  • There is the option to terminate the lease agreement during the contract, but it can be costly. However, alternatives are to find someone to take over the lease

Advantages of Buying

  • Credit rating and ownership. Owning your vehicle outright is another asset that’s good to have on your credit score, as well as the pride of ownership is priceless.
  • Buying a car is costs less in the long run over financing through leasing.
  • You’re not dinged for excess mileage charges. You own the vehicle.
  • Financing flexibility: You can sell the vehicle anytime you want, for the price you want (likely market value)

Disadvantages of Buying

  • Biggest defector of buying a car is the higher down payment you’ll pay, unlike leasing.
  • Monthly payments are typically higher for buying a car, reducing the possibility of driving a more luxury car.
  • Maintenance and wear-and-tear is the owners responsibility. Once the warranty expires, maintenance and repairs can be costly.
  • Haggling or selling: Not everyone is a salesperson. You’re stuck with the task of trying to negotiate the best deal when needing to sell or trade in your car.
  • Equity: More of your monthly liquidity is tied up in your car payments. Buying a car reduces the amount of money you have available every month
  • Depreciation: When you pump so much money in ownership – it’s sad to know the price of depreciation on your purchase. So to call a vehicle an investment is not the best way to look at buying a vehicle – as this is one asset the will depreciate over time (unless you got yourself a classic vehicle).

Knowing the key advantages and disadvantages of leasing a car, and its pros and cons versus buying a car, is an essential foundation to knowing how leasing works and negotiating the best auto leasing deal for you.

So is leasing right for you? Again, that all depends on your personal preferences and your financial situation. Leasing can be a great option for consumers to finance a vehicle, but for others, it’s not always the case.

Next:  What is a short term car lease?

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