Car leasing is extremely popular because it provides an attractive method of driving an automobile that you might not otherwise afford. It allows you to make lower monthly payments than with traditional car purchase loans. About one out of every four vehicles driven by automotive consumers in United States are leased.
But leasing is not for everyone. You should take time to learn about leasing, and be sure it's right for you before making a decision.
What is Leasing
While a purchase loan is a method of financing ownership of a vehicle, leasing is a method of financing use of a vehicle for a specified time period. As much as it sounds like renting, leasing is different.
A lease is a formal contract with a leasing provider that allows you to drive provider's car and only pay for portion of vehicle's value that you use up during time you're driving it. You agree to pay for insurance, licenses, taxes, repairs, and maintenance.
The leasing provider retains ownership and title to vehicle throughout lease. At lease-end you can simply return your vehicle to provider, or you may purchase vehicle and continue driving it.
Benefits of Leasing
Leasing offers following benefits when compared to purchase loans:
- Lower monthly payments
- More car, more often
- Minimum or no down payment
- Smaller sales tax bite in most states
- No used-car headaches at end
Who Provides Leases
Contrary to popular belief, car dealers do not lease cars. Banks, credit unions, and financial divisions of major car manufacturers lease cars. Dealers simply act as agents of a leasing provider, such as Ford Motor Credit or GMAC, to arrange lease on your behalf. Dealers typically work with more than one provider.
Once you've picked out car you want, dealer sells it to leasing provider, who leases it you. It's not necessary, nor is it always best choice, to use "captive" leasing company chosen for you by dealer.
You can arrange for lease financing yourself with an independent leasing company, bank, or credit union after you've negotiated price with a dealer. Some lease providers even work with dealers to acquire vehicles for you at reduced prices, saving you money and stress of negotiation.
Who Should Lease
Leasing makes sense for many automotive consumers, but not for others. Here's how to determine if you are a good leasing candidate:
- Are you willing to trade ownership of your vehicle for lower monthly payments? Leasing is a great way to lower your payments or drive a better car for your money, but you must be comfortable with having no ownership of your vehicle, unless you purchase at lease-end.
- Can you stick with your lease until end? Leases require you to commit to driving your vehicle for a specific number of months — typically 24, 36, 48, or 60 months. If you feel your lifestyle, your finances, or simply your taste in cars may change significantly in future months, you may not be a good lease candidate. To end a lease early is usually troublesome and costly.
- Do you drive more than 15,000 miles annually? If your answer is yes, you may not be a good candidate because lease contracts are typically written with an annual mileage limit, typically 10,000-15,000 miles. If you drive more that specified number of miles you will pay a fee for every mile over limit.