What Does it Mean to Lease a Car?

by Melvin Richardson

When you lease a car, you are making monthly payments for the use of the car. Lease agreements can have terms of three or four years. When your lease expires, you have a couple of options to pursue. Most leases allow you to put no more than 12,000 to 15,000 per miles on the car per year. You will also be responsible for regular maintenance of the vehicle. Each leasing company has its own terms and agreements. Compare several companies to get the most favorable terms.

Ownership

The important thing about leasing is that you are not making payments toward ownership. You are making payments for the use of the vehicle for a specific period of time that is subject to certain requirements.

Purchase Option

When you lease a car, at the end of the term, you may decide to buy it outright by paying the salvage value. Sometimes this can be excessive. Leasing allows you to make low monthly payments; therefore, you are not building any equity in the car. If you decide to purchase, you will need to obtain regular financing because the lease is turning into a purchase. The price of leased vehicles is normally higher than other cars offered by a dealer.

New Car

When your lease expires, you can return the car and receive another car for another leasing term. Anyone who likes to receive a new car every two or three years should consider leasing. You will be able to keep an automobile that is current and trendy and for the most part is always in good condition. You can even change the style and type of the car when your lease expires.

Early Termination

Once you enter into a lease agreement, you must continue to make monthly payments until the term expires. If the vehicle is turned in before the contract ends, you will be assessed a large early termination fee from the leasing company. Any benefits in terms of costs that you were hoping to achieve will be wiped out by this fee.

Down Payment

When you lease a vehicle, you will usually be required to submit a down payment that is non-refundable. The exact amount can vary, but, generally speaking, it will be in the area of $1,000 to $2,000. This is another cost you may want to evaluate before you decide to lease.

Security Deposit

Leasing may also require you to have a security deposit. When your lease expires, you should expect to receive your security deposit back. The leasing company will evaluate the condition of the automobile to see whether there was any excessive wear and tear. If there were damages, your security deposit could be applied toward the repairs.

Credit History

To receive the best terms and conditions, you should have good credit. Some leasing companies may require a larger down payment if your credit is not in the best condition.

About the Author

Melvin J. Richardson has been a freelance writer for two years with Associated Content, and writes about topics such as banking, credit and collections, goal setting, financial services, management, health and fitness. Richardson has worked for several banks and financial institutions and gained invaluable experience and knowledge. Richardson holds a Master of Business Administration in Executive Management from Ashland University in Ashland Ohio.