Leasing vs. Buying: What Does It Mean to Lease a Car

Vehicles make your life more functional as you don’t have to depend on public transportation to run errands or travel long-distance. Before you get a new car, ensure you consider your options and decide what option is best.

Leasing vs. Buying: What Does It Mean to Lease a Car - gear knob shifter imageSource: pixabay.com

Why Lease Payments are so Cheap

For brand new vehicles, leasing is always more affordable as compared to purchasing a car. Whether you are paying in cash or financing your vehicle purchase, you will pay more than you would if you chose to lease.

For every new vehicle, three main factors determine the difference in price when buying or leasing. Buyers pay for equity, depreciation as well as interest expense while leasers pay for depreciation and interest expense only.

Leasing a vehicle means that you gain access to it, but the car dealer retains ownership. Access to a leased vehicle is terminated when the leasing period is over. Car leasing is an affordable endeavour because the overall cost for leasing is much lower than the purchasing cost.

Residential Value

When a new vehicle is leased for the first time, it retains significant value once the lease period ends. This is called residual value, and it determines the lease rates of the vehicle. The higher the residual value, the lower the leasing rates. Knowing car leasing tips helps you settle for the best deal.

Ideally, you pay the car dealer the car’s depreciating value based on its current value and what value it will have retained at the end of the lease. Expensive vehicles have a more attractive leasing value as they have a higher residual value. Always consider your financial situation when deciding on buying or leasing a vehicle.

Leasing and Taxes

Even though when you lease a car you don’t get ownership, you are still responsible for sales taxes. Consider shopping around to get a car dealer who offers you the best leasing deal. Ensure you can afford the monthly payments to avoid financial stress.

Mileage

Leased vehicles have a mileage limit of 10,000-15,000 per year. If you exceed this mileage limit, you’ll be required to pay 25% per mileage. It is possible to negotiate for a cheaper or more expensive lease depending on the mileage you see yourself covering.

Don’t Lease Beyond the Car’s warranty

For brand new vehicles, it is always advisable to avoid leasing beyond the car’s warranty. Leasing beyond the car’s warranty will set you up for huge repair bills.

Conclusion 

Consider your financial situation when deciding whether to lease or purchase a car. Vehicles are huge investments, and they make life easier as you don’t have to depend on public transportation to move around. When you want to lease a car, shop around for the best deal because, at the end of the day, you don’t get the car’s ownership.

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