With the prices of cars soaring into the stratosphere over the last 20 years, leasing is an increasingly attractive option. For millions of Americans, leasing provides a way to drive off the lot in a brand new car, enjoying the safety, reliability and confidence that can only be found in having a new car.

Leased vehicles are typically brand new. This means that they are almost always totally covered by a manufacturer warranty but that they almost never break down anyway. Many current lease deals even include things such as oil changes and tune-ups for free.

What Does Leasing a Car in Involve?

There’s nothing complicated about leasing a car. In fact, it’s usually considerably easier than buying one. That said, there are a few things that you should know. We break down the most important points, so that you can make an informed decision about buying verus leasing.

Your Payments Reflect the Car’s Value.

The monthly lease payment will usually be determined in large part by the sticker price of the car. The lower the value of the car, the lower the monthly lease payment will be.

Some compact cars may be leased for less than a few meals out each month.

Higher Residual Percent Saves You Money.

The residual percent is a way that dealerships measure the portion of the car’s original value that they expect it to hold upon expiration of the lease contract. The higher the
residual percent, the lower your monthly payment will be.

Understand Your Set Miles.

One unique aspect of leasing is that there is typically a cap on monthly miles allowed to be driven. Once this number is exceeded, the lessee will being running up per-mile surcharges. So it’s extremely important to know the set miles on your lease.

Expect a Disposition Fee.

Another idiosyncrasy of leasing is what’s called a disposition fee. This is a fee between $300 and $500 that you will be required to pay upon turning in your car. The money helps the dealership prepare the vehicle for resale, an expensive process.

Understand What Money Factor Means.

Money factor is the leasing equivalent to APR for auto loans. It is a measure of credit risk. The lower the money factor, the lower your monthly payment will be.

Is it Better to Lease or Buy a Car?

That question can only be accurately answered by the consumer themselves. However, it’s a lot easier to come to a conclusion about whether to buy or lease when you’re well-informed. As with any other transaction, it’s crucial to carefully read the lease agreement and absorb as much information as you can, in order to come to the best decision about leasing versus buying.

You Won’t Own the Car

This is the reason most often given by people who argue that you should never lease a vehicle. But it’s misguided. Ownership does carry benefits. But it also carries significant risks. This is especially true with bank loans.

One of the worst things that could happen to any car buyer is to have their vehicle repossessed for missing a payment. In today’s environment, banks typically don’t mess around. Auto loans are typically handled by huge banking conglomerates. Even getting someone on the phone to discuss payment options can be impossible. When a bank repossesses a car, the car owners often lose most or all of the equity in the vehicle.

Leasing avoids this risk completely

Leasing Cuts Down Up-Front Costs

This is one of the most compelling reasons to lease. Purchasing a new car, even on a bank loan, can often involve tens of thousands in up-front costs. These can often prove to be too steep for many, leading them to compromise on used cars that don’t have the reliability or safety of newer models.

On the other hand, the drive-off costs of a new lease are often only a couple hundred dollars. You’ll have to pay some taxes and usually make a small security deposit, but a lease will get you more car for your buck and have you driving off the lot with the safety, reliability and comfort of a brand new car.

No Need to Worry About Selling Car Leases

Another one of the main reasons people avoid leasing is because they figure they’ll recoup a lot of the costs of the car’s purchase price by selling it themselves when they’re done. Anyone who has sold more than a few cars themselves will tell you that it’s no walk in the park. Most people with decent jobs would be far better off leasing their car, then working the 50-100 hours they may have spent trying to sell it themselves than they would be owning it and taking the extra cash they can make by selling it.

End Payments

When the lease is done, you’re free to walk away. You’ll have an option to buy. But you won’t be under any obligation to do so.