If you need a car to drive but do not have the budget to make a large down payment, then you may consider getting a car lease. Simply put, car leasing means “renting” a vehicle from a leasing company. Instead of making one large payment to buy a car, leasing gives you the option to pay small monthly instalments as you get to drive the leased car. In this article, we discuss important facts that you should know about car leasing.
Types of Car Lease
For instance, if you exceed the maximum number of mileage, you will be subjected to pay fees for each exceeding mile. In addition, the car will be evaluated upon return and if the wear and tear is beyond the acceptable level defined in your contract, you will need to pay the charges.
You can also choose to buy out the car at the residual value. The buyout price should be clearly stipulated in your contract when you signed up for the lease.
What about an open-end car lease? This particular type of lease is especially offered for businesses. In an open-end lease, the lessee pays the difference between the pre-determined residual value and the market value of the car which is determined at the end of the lease.
Car Lease Advantages
First, leasing a car involves a minimal upfront cost. Most leasing companies only require the first-month lease payment and a security deposit. On the contrary, purchasing a car requires a huge sum of money since you will need to pay the price of the car at once, including the down payment to your car loan lender.
Monthly lease payments are also much lower compared to the monthly car loan payments. Since you are merely “renting” the car from the leasing company, you are not paying the full price of the car as you would if you will purchase.
Car Lease Disadvantages
Terminating your car lease earlier than the agreed term may also cost you a significant amount of money. Although leases usually finish their car lease term, there might be instances when you are forced to end the lease such as when the car gets into an accident or when the car is stolen. You should be clearly aware of your lessor’s policy in such circumstance right from the beginning to avoid unpleasant surprises later on.
The interest rate charges can also be a major disadvantage. While your monthly lease payments may seem affordable, you could end up paying a very expensive amount of money if you will calculate your overall lease payments throughout your lease term.