What is a car lease, and how does it work?

The pros and cons of leasing a car.

If you're in the market for a new or gently used vehicle, one key decision is whether to lease or buy. Let's take a closer look at how car leases work, along with their advantages and drawbacks, so you can make a well-informed choice.

What is a car lease, and how does it work?

Essentially, leasing a car is like renting it for a set period, typically between 2 to 4 years. It’s a contract between you and the dealership where you make monthly payments in exchange for the vehicle's use. However, unlike buying, you won’t own the car at the end of the lease—the dealer will take it back.

Leases usually have strict rules. These include limits on mileage, maintenance needs, and penalties for extra wear or going over the mileage limit.

In many cases, you’ll have the option to purchase the car once the lease ends.

Advantages of Leasing a Car

●      You can enjoy driving a new car every few years.

●      Monthly payments are often lower than financing a vehicle with a loan.

●      Leases usually require a smaller down payment compared to purchasing with a loan.

●      Leasing offers flexibility since you're not locked into long-term ownership.

Disadvantages of Leasing a Car

●      Exceeding the mileage limit can result in costly penalties.

●      Monthly payments don't contribute to car ownership.

●      You may face additional fees for excessive wear and tear, such as scratches, dents, or interior damage.

●      Ending a lease early can come with significant financial penalties.

Should You Lease or Buy a Car?

When deciding whether to lease or buy your next vehicle, several factors come into play. Ultimately, the choice depends on how much you drive and how much wear your car typically endures.

Leasing a car may be the better option if:

●      You plan to keep the car for fewer than 3 years.

●      You drive less, as most leases allow between 10,000 to 15,000 miles annually.

●      Your driving habits result in minimal wear and tear.

On the other hand, buying a car may be a smarter choice if:

●      You tend to keep cars for more than 3 years.

●      You drive more than 15,000 miles a year.

●      Your driving or lifestyle leads to more significant wear, like dents, scratches, or upholstery damage.

Can You Lease a Used Car?

Yes, leasing a used car is an option at many dealerships, particularly with certified pre-owned vehicles. The process is similar to leasing a new car, but your monthly payments are often lower with a used vehicle lease.

Another possibility is taking over someone else’s current lease, which may allow you to skip the down payment.

Keep in mind, the same advantages and disadvantages of leasing a new car apply when leasing a used one.

Sources:

https://www.fidelity.com/learning-center/life-events/what-is-a-car-lease

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information