Car lease is like renting a vehicle for few years. You use it during some time period (usually 2-4 years), but you don't own it at the end. The main difference with auto loan and the major benefit of car lease is that car lease payments will be lower.
Before signing a lease agreement, you should consider:
- auto leases require you to make payments for a certain period of time. Time span can range from 24 months to up to 5 years. Auto leases may be hard to get out of; so make sure you understand what happens if you decide to terminate early. Most of the leasing companies allow clients to transfer the contract.
- it's normal for a vehicle to show some wear and tear after a few years of driving. Usually the amount of wear and tear do not exceed $1,500-2000. Don't expect to drop off the vehicle at the end of the lease period with a fender or other essential part missing without paying for it. Clients are expected to keep vehicles in a sufficient driving condition.
– most auto leases limit you to 12,000 miles per year or even less. If you exceed this amount, the deal could be fairly costly; about 10-25 cents for each mile over the permitted limit. However there are many finance companies that allow for extra miles. So if you are going to be driving above the limit make it clear beforehand.
- learn what happens at the end of the car lease at the very beginning of the deal. In many programs, you can purchase the vehicle for an amount that is pre-determined in the lease agreement. The price is based on the depreciated amount of the vehicle – residual value. However, the residual value in auto lease may not reflect the market value of the very same vehicle at the end of lease term. Make sure to research what is the actual market price of your vehicle at that time. If you find out that your vehicle is worth less than the residual value, you can negotiate with the leasing company for a lower price or return the vehicle.