If you are looking for a new vehicle, and buying it outright isn’t the best option for you, then you might have come across the option of leasing a car. Therefore, here is everything you need to know about car leasing.
What is car leasing?
Leasing a car is very similar to renting. You choose a vehicle for an agreed length of time for a set fee. This is usually between two to five years. The overall cost is calculated based on a few different factors:
The undriven value of the car
The residual value – The car’s estimated value at the end of the lease
Your annual mileage allowance
The length of the lease
Each contract is tailored towards your needs and requirements specifically for you, looking at your estimated annual mileage, how long you want the car for, and how you want your payments to be structured.
When choosing your vehicle, you can select whichever make and model you like – you have complete freedom of choice. This is also the case when it comes to colour, trim, and even in-car technologies. For example, you can even get an Electric car lease.
How does it work?
At the start of the lease, you will be required to put down a deposit, which might also be referred to as an initial payment. The initial payment usually equals a few months of monthly payments upfront. It’s just like renting a house.
You will then pay a fixed monthly fee over an agreed period of time, within a maximum annual mileage. If you exceed the agreed mileage, then you will have to pay a penalty for the extra miles at the end of the agreement.
At the end of the lease, you will need to turn over the car back to the company you have leased it from. However, you must return the car in good repair and condition, taking into account fair wear and tear. So, if you return the car damaged, you might be subject to a charge to cover the repair.
How does the financing work?
Leasing a car is effectively a long-term rental. As you pay monthly instalments towards the usage of the car, you are also essentially financing the car, except you don’t get to own it at the end.
In order to sign up for a car lease, you might need to pass a credit check to secure the agreement. According to an official Government site, car leasing credit checks won’t assess your other outgoings – it is down to you to make sure you can afford the monthly payments within your budget.
How much do you pay per month?
The amount that you pay depends on the make and model that you choose, how many miles you will do annually, and how long you will keep the car. Throughout this time the car will remain the property of the finance company.
As cars depreciate in value over time, when it comes to hand it back it will be worth a lot less. Therefore, the amount that you pay per month also includes an amount that covers the loss in depreciation over the time that you own it, plus, of course, a margin for profit.
And there you have it – an essential guide to how car leasing works. Now, all that is left to do is to get your dream car and get on the road!