What Is a 5 Year Auto Lease?by Shanan Miller
Leasing is an excellent alternative to financing for those who don't like to worry about the future market value of their vehicle or having to sell or trade in. Those who lease also will not be affected by economic changes that could alter the value of their vehicles, such as gas prices.
Before understanding a five-year auto lease, you must understand what a lease is. Leasing is similar to renting a vehicle, with certain differences. You decide how long you'd like to drive the car and how many miles you will be allowed a year. You can lease for up to five years, a minimum of one year or anywhere in between. At the end of the leasing term, you will bring the vehicle back to either a dealership or to the leasing institution. You will see no financial gain on this vehicle--essentially, you walk away.
Typical mileage options range from 12,000 to 18,000 miles per year. You can choose to buy extra mileage, but it will prove relatively expensive in comparison to a purchase. Because you pay for depreciation while leasing--the higher the mileage you choose, the higher the payment will be. The mileage allowance is an end-of-term agreement--nobody checks the mileage on your vehicle every year. Multiply the allowed mileage per year by the lease term and do not go over that amount by the end of the term.
Penalties and Extra Costs
Leasing can be risky for a term of five years. Driving conditions may very well change because of employment or family needs. Going over mileage can be expensive--up to 20 cents per mile past the contract amount. A leasing term of 36 to 39 months is the most common, because warranties are in place from the factory. Leasing a vehicle for 60 months may not include a warranty that lasts that long. You are responsible for all repairs to the vehicle while you are driving it. Additionally, any damage to the vehicle must be fixed before return. You will be charged for damages not repaired, extra wear and tear determined by the leasing institution or for failure to carry out the term of the contract. Generally you may not end your lease early without penalties.
Most people finance a vehicle for a term of 60 to 72 months. It may not make sense to lease for a five-year term. Your monthly payments will rarely be cheaper compared to a finance payment for such a long term. You may shop to see which pricing would be best, but also consider penalties and likeliness of driving-habit changes over the long term.
Because five years is a long-term lease with great risks, you may find that you have to try to get out of the lease. You can do this by transferring the lease to another person, which would involve good credit and an approval by the leasing institution. You can also choose to pay the penalty fees, which are usually the amount equal to any monthly payment left on the leasing contract, in addition to a bank-determined penalty.
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