Car leasing is an agreement between two parties wherein one party agrees to use a car for a specified period of time by making a partial payment. In other words, car leasing means letting your car be used by someone for a fixed period of time. Under the concept of car leasing, you only pay for using the vehicle.
1. Advantages of car leasing
Listed below are some advantages of car leasing:
- The most important advantage of car leasing is that you can make partial or zero initial payment.
- Advance payment like sales tax charges are avoidable under such agreements.
- You can enjoy the benefit of owning the latest models of cars after two or three years.
- The monthly installment costs are less. The burden of paying the principal amount does not exist here.
- You will only end up paying minimum maintenance charges.
- Disadvantages of car leasing
2. The disadvantages of car leasing:
- You tend to spend more on leased vehicles than on the buyers.
- You are bound to return the car in the same condition as it was before leasing, you are not supposed to alter or make changes to the vehicle.
- You need to pay higher penalties in case of any damages to the vehicle.
- Cancelation charges are also high in case the leasing agreement is canceled prior to the stipulated period.
- Leasing agreements will prove to be a costly affair because you will end up paying installments for a longer time period.
3. Popular terms used in car leasing
Manufacturer’s suggested retail price (MSRP): This is the actual cost of the vehicle. Polish your bargaining skills to reduce MSRP costs.
Capitalized cost or cap cost: This is one of the most popular terms used in car leasing. Lease payments and capitalized costs are interdependent on each other. If capital costs are less than the lease amount will be smaller.
Residual value: This term is popularly used when the lease term of your vehicle ends. Residual value is the actual value of the vehicle at the end of the lease agreement.
Depreciation: Depreciation costs form an essential part of the car leasing agreements. The difference between the actual cost of the vehicle and residual value.
Money factor or lease rate: It is similar to that of the interest rate. It is the cost paid for a specific time period for using the vehicle or car during the leasing agreement.
Mileage allowance and charges: It is the charge that the lessor is going to charge to the lessee by fixing maximum miles driven per year during the lease period.
Lease term: It is basically a time period of a lease agreement. It can range from two to four years.
Purchase option agreement: This option allows the user to buy the vehicle at the end of the leasing contract.
Upfront fees and charges: Upfront charges include down payment, taxes and license fees, acquisition fee, etc.
Penalties and additional charges: These include default charges, advance cancelation fees, disposal fees, and damage charges.
The concept of car leasing is a win-win situation for both the buyer and seller. But some people are against the idea of leasing. An individual has to be aware of all the terms and conditions used in car leasing agreements since lack of knowledge might cost you in the future.