How Does A Car Lease Work?
If you are wondering how does a car lease work, with this article we’ll try to explain what you should know about this, without getting into any boring details. One of the main reasons why people decide to lease a car instead of buying it is because they know that if they choose the latter option, once they’ve driven the car off the lot, it instantly losses about 20% of its values. The advantage of leasing is that you have to pay only for the expected depreciation amount which is why in many cases it is wiser to lease rather than buy a car.
Leasing a car means that you will be paying a certain amount of money for a pre-determined period of time in which you will be using the vehicle. When you lease a car from a dealership, this dealership actually sells the vehicle that you want to a leasing agency and they earn a commission for giving a new client to the agency.
After you have leased the car, you will start making the monthly installments which are calculated by estimating the amount of the depreciation we’ve mentioned in the first paragraph that the car will suffer over the period of the lease. Let’s give an example to make things a little bit clearer. Let’s imagine that you lease a car that is worth $40,000 and the leasing agency estimates that after the contract is over, the car will be worth $29,000. This means that you will have to pay that $11,000 difference. Simple, right?
If you decide to buy that $40,000 car, you’ll basically lose right from the start about $8,000 and it will continue to depreciate in the same way like a leased car does. For this reason, those of you that are not concerned about owning a car, this method will give you a less stressful financial effort.
Of course, when leasing a car and calculating the monthly payments, you’ll have to take into consideration those additional charges, like the finance charge which is in fact a varying percentage that is based mostly on the situation of your credit score. Also, you will be obliged to pay licensing fees or in the unfortunate case in which you damage the car or drive it more than you are allowed.
After the leasing agreement ends you will have the chance to buy the car at a purchase price which is in most cases the subsequent value of the vehicle after its depreciation. Most likely, you will also have the possibility to lease it again or trade it in for a new one.
You all know that we can negotiate the price of a used car, even a brand new one, but what about negotiating the price of the lease? The answer is yes, it can be done. Although the residual values as well as the money factor are set by the leasing company, the capitalized cost which is basically how much the car costs can be negotiated.
Also, don’t forget about your driving habits and figure out if you will be able to stay within that mileage limit. If you think that you will do more than the contract says, try to negotiate the figure. You need to know that the average is approximately 15,000 miles per year.
All things considered, leasing comes with some advantages, but in the end it is up to you to decide if you want to pay for a car that at the end it still won’t be yours. If you don’t care about that and you want to change your car every 2-3 years, leasing is the way to go.
Post tags: Tags: automotive articles, how does a car lease work
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