Financing Leased Vehicles

The decision of whether to lease or buy a vehicle is one that is individual to each person based on their needs. Buying a vehicle is much different than leasing because leasing is like a long term rental agreement. On an installment loan you pay for the vehicle monthly but when the payments are complete the vehicle is yours to own. In a lease agreement, when you finish making the payments you do not own the vehicle. Some leasing companies do give the option to buy out at the end of the lease. Leasing started as a means of providing vehicles for business use. These days, many people use it as a way to drive newer vehicles that they cannot afford to buy.

Leasing appeals to people who like to drive a new vehicle with lower monthly payments. Keep in mind that leasing a vehicle is just like buying one in that you are responsible for maintenance, repairs, and other fees but do not have the advantage of actually owning the vehicle. For this reason leasing can be a bit of a money pit with no pay off in the end. Alternatively if you own a small business or use the vehicle for business use, many of the expenses can be written off when doing your taxes.

A lease contract is made for a set amount of time that usually ranges from two to four years. Payments are calculated to cover the estimated amount of depreciation and interest. Because you are not paying for the full value of the car, it makes monthly payments much cheaper than if you bought the same vehicle new. The residual value of the vehicle is the main deciding factor in the cost of a lease. Residual value is the value that the vehicle will be worth when the lease is complete. Cars with lower values (cheaper vehicles) will have lower residual values and may be fairly inexpensive to lease. There are generally two types of leases-open and closed ended leases. In a closed end lease the residual value is predetermined and when the lease is up you pay for any extra mileage and any damage that was done to the vehicle. In an open end lease the residual value is calculated when the lease expires. If the vehicle is worth more than the predetermined residual value you will get a refund from the leasing company.

If leasing sounds appealing to you, be sure to shop around. Some leasing companies offer a rebate on certain makes of vehicles which can be applied to your down payment. In order to lease you also need to have good credit. Be sure to run your own credit check before approaching a car dealership or financial institution to make sure there is nothing outstanding on your score.