What does it mean to Lease a Car? Difference Between Leasing and Buying a Car

leasing a car vs buying what does it mean to lease
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This article is pretty straightforward and will concentrate on leasing a car vs buying. We will basically consider what it means to lease a car, the difference between leasing and buying a car, and all it entails to buy or lease a car.

Difference Between Leasing And Buying A Car

Modern cars today are expensive. Their prices can be out of reach for many shoppers, exactly the reason why buying a car is naturally more expensive. Actually, you have to pay the entire purchase price of the vehicle.

Even with long-term auto loans, it can be tough to afford a new car, and this is where car leasing comes into play.

ReaD: Should I Buy a New Car or Used Car? Reasons that are worth it

What Are the Benefits of Leasing a Car?

  • Your car will always have warranty coverage.
  • Trading-in a leased vehicle is easy.
  • Lower monthly payments than a loan on the same vehicle.
  • The latest technology with a new car every few years.
  • You may save some money on sales tax.
  • You could have a lower down payment.

WHY LEASING IS A BAD IDEA

  • You don’t own the vehicle.
  • You always have a car payment.
  • It can be hard to get a lease with bad credit.
  • You need gap insurance.
  • Leasing can be complicated.
  • Lease deals are limited.
  • There’s a mileage limit.
  • You can’t customize your ride.
  • You won’t get any cash when you trade-in.
  • There can be surprising lease-end costs.
  • There are restrictions on how you can use your vehicle.
  • You can’t get your vehicle fixed just anywhere.
  • You have to return it in great shape.

Below, we will discuss leasing a car vs buying.

How Does Leasing a Car Work?

There are two common types of car leases; the Open-end lease and Closed-end leases so you need to decide which you would go for.

Also, remember that when leasing a car, you’re borrowing it for a specific term.

You won’t build any equity in the vehicle at all, but you’re generally off the hook for repairs during your lease term since the car is most likely under warranty. 

Although leasing comes with downsides, it’s still a popular option for people who want to drive a new car most of the time.

Leasing lets you get into a new car, drive it for a few years, and then upgrade to a new lease and start the process all over again. You’ll never have to worry about selling a car so you can move on to a newer one, nor worry about having negative equity in your trade-in.

According to Experian’s Q4 2020 State of the Auto Finance Market Study, the average lease term worked out to a little over 36 months (36.46 months) in Q4 of 2020. Meanwhile, the average monthly payment for leases was $460 per month. 

Read: Get Paid To Advertise On Your Car: 7 Companies That Can Pay You In 2021

IS A CAR LEASE WORTH IT?

YES!

Leasing allows you to get more cars for less money, so if you are one of those people with the belief that there’s nothing like the feeling of driving away in a brand new ride then leasing may be the way to go.

When the lease is up in a few years, you can return it and get your next new car.

IS LEASING A CAR A WASTE OF MONEY?

NEVER!

One of the main benefits of a lease is that you don’t take any risk when it comes to car value fluctuations. 

WHY LEASING A CAR IS SMART

When you’ve got a new car every few years on the lower monthly payment, worry-free maintenance with no resale worries then, you would agree with me that it’s a smart choice.

HOW TO LEASE A CAR?

  • Set a Budget
  • Know Your Trade-in Value
  • Know Your Mileage
  • How You Use Your Vehicle
  • Know Your Credit Score
  • Look for Lease Deals
  • Negotiate the Price
  • Know How to Compare Leases
  • Time Your Lease
  • Watch Out for Fees and Taxes
  • Read the Paperwork Carefully
  • Watch Out for Extras

Read: 15 Best Car Buying Apps in 2021 | Best Car Finder Apps

10 DIFFERENCE BETWEEN LEASING Vs BUYING A CAR

The decision to lease a new vehicle rather than buying it depends on someone’s priorities. For some, it may be a straightforward financial decision: Which costs less?

Other drivers may be more interested in less tangible factors, such as the ability to drive a later-model car.

Here’s a look at a few key distinctions in leasing a car vs buying;

LEASING A CARVSBUYING A CAR
 Leasing requires far less upfront, and in some cases, even no money down. If your cash flow is tight, leasing offers some more flexibility.Upfront CostsYou’ll likely need to put some money down, often as much as 10% to get the best financing rates available
Almost always lower than lease payments, since you are only paying for the vehicle’s depreciation during the term.Monthly PaymentsUsually higher than lease payments, since you are paying off the entire purchase price of the vehicle.
Most leases limit the mileage to 10,000 miles per year. You will have to pay charges for exceeding the limit.MileageYou have no restrictions on how many miles you can drive your new vehicle.
At the end of the lease term (typically two to four years), you can return the vehicle and lease or purchase a new one.End of Term/Vehicle ReturnAt the end of the loan term, the vehicle is paid off. You can sell or trade-in your car when you want a different one.
When leasing a car, you’re essentially renting it on a long-term basis from the dealership for a specific period of time.OwnershipWhen you buy a car, you own the vehicle and can keep it for as long as you choose.
With a lease, it’s a lot easier. You drive it back to the dealership, hand them your keys, and walk away. The downside is that when you do walk away, you won’t be any richer.Vehicle Return or SaleWhen you’re ready to get rid of it, you can either use it as a trade-in or sell it on your own
The car is yours within the agreed period Once you buy a vehicle, it’s yours to do with as you please.Length of OwnershipYou get to keep it for a year or you can keep it until the wheels fall off and you drive it into the ground.
If your car undergoes excessive wear and tear, most leases will require you to pay penalty fees to fix them.Future ValueThe only worry for someone with a car loan/financing is how it will affect the resale value.
If you’re pretty rough and tough on your cars, leasing may not be a great option.Wear and Tear/MaintenanceYou can drive carefreely
If you like 20” rims or choose to add a short-shifter, all that needs to come off prior to returning the car.CustomizeIf you buy, you can add all the bling you want and never have to worry about taking any of it off prior to selling the car.

AFTER LEASE, WHAT NEXT?

  1. Get a guaranteed asset protection Insurance
  2. properly Care for Your Leased Vehicle
  3. Make Your Payments on Time
  4. Decide earlier whether to buy the car or lease another

READ: 10 Most Expensive Cars In The World

How to Get Out of a Lease

  • Leasing a New Car
  • Transferring your lease to someone else who is willing to take over the payments
  • Purchasing your vehicle from the lessor at its buyout value and selling to a third party.
  • Terminating your lease early: you’ll be liable for both an early termination fee and potentially thousands of dollars to compensate the lender for the payments that you won’t be paying over the rest of the lease

CAR LEASING TERM YOU SHOULD KNOW

Lessor: The lessor is the company that you lease the car from. NOTE: Your lease contract is between you and the lessor, not the dealership where you get the vehicle from.

Lessee: The lessee is you. In other words, it is the person or company who leases the car from the lessor.

Capitalized Cost: The “cap cost” is the price of the vehicle.

Cap Cost Reduction: A negotiated price, the value of a trade-in, a down payment, or a special lease deal from an automaker that reduces the price of the vehicle is called a cap cost reduction. It reduces your monthly lease payments as well as the amount due at signing.

Residual Value: It refers to the amount set by independent companies that the car is expected to be worth at the end of the lease

Lease Term: The length of the car lease

Money Factor: This is the interest rate you’ll be paying for leasing a car. This is attained by multiplying the money factor by 2,400.

Security Deposit: A security deposit helps protect the leasing company if you go over the allowable mileage, damage the vehicle, or default on the contract and can be refunded to you if there are no extra costs incurred. NOTE: Not all leases have security deposits.

Due at Signing: This is the down payment, the amount due at signing is how much you have to pay when you sign the lease documents excluding taxes or registration fees.

Acquisition Fee: This refers to a negotiable or non-negotiable amount charged by the leasing company for setting up the lease.

Disposition Fee: The end-of-lease counterpart to the acquisition fee is the disposition fee. It compensates the dealer for preparing your lease return for resale.

Mileage Cap: This is a strict mileage limit that specifies how many miles you can have on the vehicle when you return it. The lease will also tell you how much per mile you will have to pay at the lease end if you exceed the limit.

Buyout Price: The buyout price is the amount that you can purchase the vehicle for at any time during the contract.

SUMMARY

Although the choice between leasing vs buying a car has plenty of financial implications, money isn’t the only factor that goes into this decision.

In fact, this choice is often based on a person’s tolerance for risk, and how often they prefer to switch cars. If you want to own a car outright — and to enjoy some time without a dreaded car payment — buying a car is the obvious choice. If you don’t care about car ownership, leasing a car is more prevalent than some drivers realize.

For me, when asked about leasing a car vs buying, I will always choose a car lease over buying/financing.

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