What to Know About Leasing a Vehicle
If you are planning on acquiring a new vehicle, your options are to either buy it or lease it. There are many pros and cons to both, but leasing can help you save money while also limiting the amount of time that you are committed to the vehicle. What are some other factors to consider before you decide to lease a vehicle?
What to Know About a Lease
When you lease a vehicle, you are paying for the right to use a vehicle for a limited period of time. Your monthly payment pays for the vehicle’s depreciation while you use it, which is why payments are lower. While you are in possession of the vehicle, you get the full warranty and any other protections that you would get if you were the owner of the vehicle.
At the end of the lease term, you can return it to the leasing company with no further obligation to pay for other maintain the vehicle. You also have the option of buying the car at its residual value. Although most people don’t know this, you are entitled to any equity in the vehicle when you turn it in or trade it in for a new vehicle.
This is because the residual value is a projection of how much the car is worth based on how many miles you could put on it. If you drive less than your allotted mileage, the car will be worth more than the residual value, and you are entitled to that money.
Pros of Leasing a Vehicle
Leasing a vehicle could be beneficial to those who are looking for a lower monthly payment or looking to trade in his or her car every two or three years. Most lease terms are for 24 to 36 months, however, some may last 38, 40 or 48 months. Therefore, if you don’t make a lot of money or don’t have a steady income, you don’t have to worry about paying a car loan for five years or more or driving a car that may break down before you can afford a new one.
Leases are also worthwhile for those who want to spend some time test driving a car before committing to it. Just like when you own a car, you can trade in a leased vehicle at any time as long as the numbers work for all sides. You should also make sure that the lease agreement allows you to turn in the vehicle before the lease term expires. However, if you are able to trade in a car before the lease term expires, you can give up your current vehicle and choose something else if it isn’t to your liking.
Cons of Leasing a Vehicle
There are several negatives that may need to be considered before leasing a vehicle. First, you could be stuck with a vehicle that you don’t like for up to four years if you are unable to trade in your vehicle before the end of your lease term. While you may be able to transfer the lease, the lender is going to expect that the new lessee has the credit score and income to fulfill the rest of the lease.
You are also responsible for any excess damage that occurs while you are in possession of the car. If the interior is dirty or the leather seats are scratched, you may need to pay for that. The same is true if there are dings, dents or scratches on the vehicle because of extreme or unusual driving habits.
Most leases only allow you to drive 10,000 to 12,000 miles per year. If you go over that amount, you have to pay a set fee per mile. While you may be able to pay for extra mileage ahead of time, it could push the cost of the lease above what you can afford at the moment.
Before you lease, it is important to know what you are getting yourself into and whether it is your best option. If you drive fewer than 10,000 miles a year, a lease may allow you to get a great vehicle at a price that you won’t find with other new or most used cars.