If you have decided to get a vehicle, you probably know you have two basic options: to lease a car or to buy one. There are advantages and disadvantages to each option, but leasing can be a solution if you don't have the credit or the money to buy a vehicle right away. Leasing is essentially a form of long-term rental.
When you lease a car, you are basically paying for the right to use a car for a time period, usually for three years. After that time, you simply return the car, trading it in for a different model or year. In most cases, you are not leasing the car directly from the dealer or owner of the car, but with the leasing company. The bank or a car dealer buys the car from the manufacturer, and then leases it out to you or someone else.
It's important to remember that leasing is not the same as buying. Monthly payments tend to be smaller, as you are not making payments to pay off a loan that you took out to buy the car. In fact, after 36 months, the average person has only paid the equivalent of 50% of the car's price. This is because leased cars are priced higher than cars available for sale. Once the three years are over, most people simply return the car and take a new one.
For those who want to buy the vehicle, there is normally a purchase option in lease contracts that allows the lessee to keep the car by paying the difference on its value. The biggest disadvantage, however, is that the price of a leased car tends to be at least several thousand US Dollars higher than the actual market value. For this reason alone, most people simply return the car after the leasing period is over.
When you lease a car, you have very low upkeep expenses, as most leasing companies will offer warranty coverage for the three-year period that you are making the payments. There are also tax deductions in place for people who lease cars for business purposes. The major disadvantage of leasing is the fact that you are stuck with your choice for at least three years. If you decide that you want to end the lease early or change the car, you will incur penalties. In addition, at the end of the lease, you must return the car, so you have nothing to show for the money you've spent.