Different from purchasing a vehicle, leasing is simply another method for financing a car. Leasing a vehicle is not an viable option for any one’s and like purchasing a car it has it’s own set of advantages and disadvantages. If you are planning on acquiring a new vehicle in the near future, there are a few things you should know about the leasing project and what it means for you financially.

What Exactly Is Leasing?
Contrary to popular belief, leasing a car is not the same thing as renting. In the car business, leasing a car basically means you make monthly payments over the course of a preset period. Lease loans typically last  from 24-36 months depending on dealership and preference. Once the lease is over you are then required to return the vehicle or make the decision to buy.

When you enter into a lease agreement you are paying a monthly payment that is a combination of a depreciation fee and a finance fee. A depreciation fee is the dealership’s calculation of how much the car will have depreciated at the end of your lease while a finance fee is the interest on the amount of money that the dealer has invested on the car. This basically means that you are basically paying the difference between the car’s total sale price, and the depreciated rate of value that the car will have when you return it.

While it’s not an option for everyone, leasing a vehicle does have it’s perks. This type of financing will essentially allow you to drive whatever car you like with a dramatically lower monthly payment than you would have with a purchase loan. Another benefit to leasing is because the dealership intends on being in possession of that car once more, leaseholders are not responsible mechanical issues and maintenance on the car. This work will almost be performed for free for the entire time you are in possession in the car, which makes it a great option for those on a fixed income worrying about unexpected expenses. Also, for the indecisive consumer, leasing is not permanent. Once the lease is up you are free to select another, more recent vehicle.

Not really. While leasing isn’t for everyone, it is a great option for some. This type of financing will not be appealing to those looking to pay off their debts and own their vehicle. That is the one major hitch in the leasing world. You are essentially paying to use a car that is not yours and not only are you responsible for the time and use depreciation, you may also be liable for any cosmetic damage (inside or out) that further depreciates the value.

What if I Want to Keep the Car?
Many dealerships offer a lease to buy program if you decide during your leasing period that you want to purchase the vehicle. Once the lease is over, the dealership will draw up new papers you can move forward with the purchase process by getting another loan. Fortunately, the money that you have already paid into the vehicle for it’s use will also be put against the car’s original cost, leaving you only responsible for the depreciated value after your leasing period.