A car is considered one of the biggest expenses most people will make. Since there are few that can afford to pay cash for the car, the majority of dealerships have designed various ways to finance cars, one of them is leasing. Leasing a car is another form of renting, since at the end of the lease you have to take the car back to the dealership. Here are the parameters that define car leasing.
The main idea is that a dealership will allow you to drive around a vehicle for a designated period of time (from two to four years). During this time you will be paying fixed monthly payments. These payments are based on a system that has as main parameters: a car’s retail value (value as used car), depreciation, and new car price. The term depreciation is defined by the considerable drop in value, the car suffers over the period of time you’re using the car. That amount of money represents the depreciation and that’s what you’re paying for. That amount will be divided by the number of months the car will be in your possession.
Leases may seem similar to renting cars but, in truth, they are much more complicated. When leasing a car, you enter a binding contract which you have to respect until the end of the lease. And you also have to respect numerous contract clauses such as: the designated number of miles you are allowed every year. The car must be kept in tip top shape at all times, since for every defect, every broken knob you will be fined at the end of the lease. You also have the advantage to purchase the car at the end of the lease for its retail value. Make sure you enter a fixed lease that has the price determined at the beginning of the lease. If you decide to purchase the car when the lease ends, other inconsistencies regarding mileage or condition will be nullified since the dealership will no longer have to care about the car.
You must understand that a car lease is not a car loan. Yes, the payments may be lower, but at the end of the lease you end up owning nothing. A car loan might represent a greater effort, but once paid the car is yours.
On the other hand, leasing could help you end up with a great car for a price easily afforded. Think about it, if you have 10.000 dollars to spare and would like to invest in a three year old car, buy you can’t seem to find anything of the sort, then you might consider a car lease. If you can find a car that has a retail value of 10.000 dollars it will definitely be worth it. First of all, you’ll be driving the car around for three years, so you’ll get to know it inside out. Since you’re the one using it, you’ll know everything about its condition. At the end of the lease, you end up paying 10.000 dollars for a car that’s been in your care all along.
Another way to go if you want to skip the three years of “testing” is to enter a lease assumption. There are individuals that, for various reasons, would like to get out of the car lease early. Here is where you come in, you enter the agreement and accept to take over the lease. This means you’ll have to pay a couple of months for a car in great condition, and purchase it at the end of the lease.
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