Car Leasing Basics

What is a car lease?

An auto lease is a creative financing structure that allows you to drive a car that you probably couldn't afford to purchase. The way an auto lease works is you are basically paying the difference between the purchase price of the car, and the price of the vehicle at the end of the term. So if a vehicle is $2000 and its payoff price is $1000, all you're paying for is the $1000 in between.

What is the standard length of a car lease?

A car lease is generally anywhere between two to four years.

What are the advantages of leasing a car?

With regards to auto leasing, there are many advantages to leasing a car. First among them is it allows you to drive a newer car, a fresh car, latest design much more often. As the term of the lease is usually three to four years, you are going back into the market much more often than you usually do if you are just purchasing a car. Another advantage of leasing a car is that it allows you to drive a vehicle that you probably couldn't afford to purchase outright. This is because you are only paying the difference between the cost of the car today and the cost of the car at the end of the leasing term, this allows those payments to go down so you are actually paying less for more car.

What are the disadvantages of leasing a car?

The disadvantages to leasing a car are on your actual usage. Many of the leasing contracts allow maybe 1000 miles or 12000 miles per year of usage. Many people drive more than that. So when you bring the car back in at the end of term, you could owe additional mileage charges. The other disadvantage is that you never really own the vehicle. You don't have that tangible value that you could use as a trade-in or sell privately at the end of the term. All you're paying for is the gap between its' cost today and its' expected cost at the end of the term. Another disadvantage is that when you go to return the vehicle at the end of the lease term, there are charges for excessive wear and tear. So you do need to treat the vehicle almost as if you would a rental car in that you're going to eventually be handing the keys back so if there are excessive scratches or dings or stains in the interior or dirt there's a good chance you're going to be charged for the ability to bring that back up to spec. Another disadvantage is that you do have an obligation to follow the maintenance schedule very closely. That doesn't mean that you have to bring the vehicle back into the dealership you leased it from but you do need to make sure that you follow the oil change schedule. And a lot of the maintenance is going to be pretty light if you are leasing the vehicle the first three years as an example, there's very little that needs to be done to a modern car during that time. But you do need to follow the oil change schedule. So if you're the kind of person that doesn't like to take the car in for maintenance on a regular schedule, the kind of person that gets it done whenever they think of it, leasing is probably not a good place for you.

Can I lease a car with bad credit?

Leasing has been used on many customers with less than stellar credit as a way to get them into the vehicle that they couldn't qualify to purchase. Because you're not buying the vehicle outright, you're only buying the particular term you're going to be driving it, the rules are a lot more lenient.

Can I put "0 money down" on an auto lease?

Because your only paying for the defined period of ownership of the vehicle, their much more flexible by nature. Quite often the manufacturer will allow zero percent, or zero down on a vehicle in order to start of the lease. In this case, the manufacturer is kicking in a little additional, usually referred to as a cap cost.

What are "closed" and "open-end" leases?

A closed-end lease refers to what most consumers would have for their car. A closed-end lease is when the gap between the purchase price of the vehicle new and the identified resale value at the end of the term is locked into stone, so that you know exactly what that gap is, and your monthly payments reflect that difference. An open-end lease leaves that eventual resale value open and that can fluctuate negatively or positively. An open-end lease would be used much more in the business or fleet line situation, not necessarily for consumer use. A open-end lease is a bit dangerous for consumers if the value of the vehicle has decreased over time, and at the end of the term you actually owe more than you expect.

What is a "single payment" lease?

With regards to auto leasing, a single payment lease is essentially paying all the money that represents the gap between the price of the vehicle new, and the price of the vehicle at the end of the term all at once in one single payment. This single payment lease allows the buyer, or the lessee, to avoid the monthly payment schedule as they are just paying it all up-front. Then they can drive the vehicle free and clear until the end of the lease term.

What is a "multiple payment" lease?

A multiple payment lease is one that is paid in monthly installments over the complete term of the lease.