Understanding a Typical Car Lease

How to pay for a new car: this is the struggle many potential car owners experience when they begin the process of finding a new vehicle. It is not a simple challenge to overcome. With so many payment methods out there, understanding which option is best for you is almost as complicated as keeping track of all the different car prices you will encounter. Beyond the basics of each method, you also have to understand which ones are most feasible for you and your financial situation. That means you have to research to try to understand things like your credit history, score, and overall financial circumstances to see what options are on the table.You are probably familiar with the typical payment options for purchasing a new car. If you are in a stable financial situation with enough money in the bank, the most simple option is buying a new car outright. If you can hand over the total amount of the vehicle to a dealership, you won’t have to worry about getting approved for a loan and paying monthly car bills. If this is not an option, then the most common way people afford a new vehicle is an automotive loan. Whether it’s from a bank or dealership, these loans help you afford the total cost of the car over time depending on the rate and duration.Despite these common methods, sometimes neither option is preferable. If you’re looking for a used car or plan on upgrading in the future, you might instead be interested in the possibility of leasing a vehicle. Something like a Ford or Chevy lease is often a mysterious, misunderstood payment option which has many benefits over paying in cash or a car loan if you have the right circumstances and vehicle needs.


Understanding a Typical Car Lease

What does it actually mean to lease a car? Once you get beyond all the complicated legal jargon, the concept is actually pretty simple. In its most basic form, a car lease is nothing more than an extended rental agreement. Typically lasting a few years, you essentially pay to use the car for that amount of time. At the end of the lease, you will usually have the option to either return the car, upgrade to a new lease, or pay the difference so you can own it outright.The tricky thing to understand about the lease is how the total price you pay is determined. Instead of a fixed rental price, for example, your monthly payment is going to rely on the initial value of the vehicle, how much you put down as a down payment, and how much the vehicle is expected to depreciate over the length of the lease. In other words, you are basically paying for the amount the vehicle will depreciate for the time that you have it.The final cost often comes down to negotiation. If you’re doing a lease with a dealership, for example, you will probably be able to negotiate things like the final price, lease length terms, and any fees that get tacked on at the end. This usually gives you more control over your final monthly payments since you are paying less, to begin with and can haggle down extra expenses.


The Advantages of a Lease

The thing that really attracts people to a lease over a car loan is the potential for lower monthly payments. This makes sense when you think about how much you are paying in the long run. With a car loan, you have to pay for the entire value of a new or used vehicle in addition to whatever interest rate is tacked on. With the lease, however, you are only paying for the suspected depreciated value of the vehicle. This often results in lower monthly payments and interest rates if any apply at all.This makes a car lease a very attractive option for people who are looking for a new vehicle on a short-term basis. It’s kind of like buying a new cell phone with the intention to upgrade after a couple years. Instead of paying for something that you will only use for a relatively short amount of time, you only have to pay for the use you get out of it. Then, you will have more money to upgrade in the future. At many dealerships, a lease is intended for this exact use: buy a temporary vehicle and upgrade to the next model later on.When done correctly, this type of payment plan can allow you to stay up-to-date with the latest features and capabilities new cars introduce each model year. It also removes the necessity to sell your vehicle when you are ready to upgrade since you don’t actually own a leased car. Instead, you simply return the vehicle to the dealership after the lease term is up and then you make your next choice.


Things to Consider

Given all of these advantages, it may seem like a lease is always the way to go when looking for a new or used vehicle. In reality, however, a lease is not always the right option. If your financial situation is poor or you are looking for a long-term purchase, you should consider other options. Most dealerships only consider approving a lease agreement if the customer’s financial history is good to excellent. This means having a great credit score, a history full of timely payments and well-managed loans, and a general sense of financial responsibility. Since a lease is treated like a car loan by the banks, dealerships want to avoid any potential complications in the future if they don’t believe a customer can handle the lease agreement.If you want a vehicle that you intend to “run into the ground,” a lease is also a bad option. While lease terms can go on for many years, longer terms are less financially desirable. In other words, you will usually end up paying more with the lease than a car loan after a certain amount of time. While a lease can seem attractive with lower monthly payments, the long-term outcome is also an important consideration.


Determining If a Lease Is Right for You

There is no automatic right or wrong answer when it comes to figuring out if you should apply for a lease, car loan, or buy a vehicle outright if possible. The only thing that makes one option the best is your own circumstances. What is your financial situation and history? What are you looking for in a new vehicle? How long do you intend to keep the vehicle? How you answer these questions will determine what the best course of action is for you.If you’re in a good financial situation and want to keep up with the latest automotive trends and technology, a lease just might be your best option.