What is car leasing?

May2
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In its simplest form, consider auto leasing simply another way of paying for an automobile, on a month to month rate, for a set period of time (term). Upon expiry of the term (3 years, 5 years), you return the vehicle.

Rather than purchasing a vehicle outright for a set price and finance it through monthly payments on a loan, auto leasing allows you to acquire a vehicle typically for less than what its normal monthly payment would be if you were to buy the car.

The details of leasing a car can be intimidating for some, but simply remember the simplest understanding of what is a car lease, its just another means to pay for the car. We’ll get into the bigger details later. A consumer, or business, can lease all types of vehicles; Mercedes leases, BMW leases, Ford truck leases (ex. GMAC), Toyota Pathfinder leases, etc. From motor cycles, cars, trucks, and capital equipment, can all be leased through a dealership from the leasing company.

You may have also heard leasing terms for a car as “buy back”, or a short term lease, or lease transfer, etc. All of these terms of leasing a car we’ll get into shortly. But for now, understanding auto leasing is straight forward. You get into a new or used car lease, pay for it monthly, and agree to return it within X years or months when the lease agreement is done.

There are also benefits to leasing that may allow you to terminate your lease early through a lease assumption, or what’s known as a lease transfer. The basics of a lease transfer is transferring the vehicle lease, lease contract and obligations over to another, who takes over the car lease for the remainder of the term (known as short-term car leasing). Again, more on getting out of a lease early later.

Leasing a car is great for the consumer, and the dealership as there are advantages to both for leasing rather than buying. For you, leasing a car allows you to essentially borrow the vehicle over the set period of time, pay for it on a set monthly date, and return it when done. With the large depreciating value of vehicles today, why would you buy something that looses value month by month? And for the dealer, well, upon returning the vehicle, they get the vehicle back, received profit from the term of the lease, and can now offer it as a used vehicle to sell or lease again to the public.

Understanding what auto leasing is will help you tremendously by empowering you with the knowledge of leasing before stepping into the dealership and having the car sales rep. apply the sales pressure tactics. Keep in mind, leasing is not for everyone. It’s up to you, the consumer to weigh the advantages of leasing, and disadvantages of leasing, to see if leasing a car suites your lifestyle and needs.

Next: Why lease a car?

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