Car Leasing in its Basics-A Quick Walk Through

When you buy a car you tend to decide how much money you can afford to spend, or borrow, and then look at what car you can purchase for the finances that you have. This is a simple way to own and run a car and there is very little involved in the transaction. When you lease a car there are far more factors to consider and the negotiating process is far more confusing. If you lease a car you are not actually buying the vehicle and will not own it. The company that leases you the car owns the vehicle and at the end of the term they will take it back.

So by leasing a car you are in actual fact renting the vehicle from the owner and a contract will be drawn up to allow you to drive the vehicle and a monthly fee will be negotiated for this privilege.

As cars depreciate in value there are also costs involved in running a car, when you consider service costs and maintenance for tires and other parts, the leasing company may not be responsible for these extra expenses. This means that the leasing contract negotiations are quite in depth as all of these factors must be taken into consideration.

First of all the leasing company will need to know how you plan to pay for the leasing contract. Sometimes a large initial payment will be made and then smaller monthly payments follow. There is also an opportunity to pay a larger sum at the end of a contract when the car is returned to the leasing company. By doing this you will keep the monthly payments down but you must always be sure that you can afford the one off larger payment as if this is missed or late then there can be substantial fines.

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Photo source: http://www.flickr.com/photos/3059349393/4173667148/

The better a car holds its resale value, the more money the car is worth at the end of the leasing term. This doesn’t mean that you will have a larger final payment but that the leasing company is left with a more valuable car. For this reason cars that have a low depreciation value and sell well second hand will generally get you a better deal for leasing.

Obviously the longer the lease agreement is the less the monthly payments should be, however, remember that that car will not be worth as much for resale at the end of the term so the saving may not be that substantial.

There are a couple of types of lease agreement that are usually available. With closed end leases you will agree a final value for the car when you take out the lease and then when you finish the term of the lease you can either buy the car for this agreed price or let the lease company take the car back. An open end lease agreement means that the final value of the car is decided at the start of the contract and when the term is over the actual value of the car is researched. The consumer then pays the difference between the two figures, which can be quite a large sum of money. Needless to say open ended deals tend to be the most popular way of leasing for private individuals.

Joddie Taine recently discovered how easy it is to buy a new company car (Do you know that the Danish term is firma bil) with car leasing.

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