A car lease is a type of financing that allows you to drive a new vehicle without owning it. Instead of purchasing the car outright, you agree to pay for the use of the vehicle for a set period of time, typically two to four years. During the lease, you will make monthly payments that are based on the vehicle’s depreciation during the lease term, as well as interest charges and other fees. At the end of the lease, you have the option to purchase the car, return it to the dealership, or trade it in for a new lease.
Advantages of Leasing a Car
- Lower monthly payments: Because you’re only paying for the car’s depreciation during the lease term, and not the entire purchase price, monthly payments are typically lower than if you were to finance a car purchase.
- Lower upfront costs: A car lease often requires little or no down payment and lower sales taxes compared to buying a car.
- Get a new car more frequently: Leasing allows you to drive a new car every two to four years, which means you can enjoy the latest features and technologies more often.
- Lower repair costs: Since the car is under warranty during the lease period, repair costs are typically covered by the manufacturer. Ideally, the warranty will cover the entire length of the lease and the number of miles you are likely to drive.
Disadvantages of Leasing a Car
- Limited mileage: Most leases come with mileage limits, typically 12,000 to 15,000 miles per year, and you’ll pay extra if you exceed those limits.
- Wear and tear penalties: You’ll be charged for any damage to the car when you turn it in at the end of the lease.
- Limited flexibility: You’ll have to stick with the car for the duration of the lease and may not be able to make any significant modifications to it.
- No ownership: At the end of the lease, you’ll have to give the car back and will not have any equity in it.