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Introduction to car leasing

Introduction to car leasing

Buying a car is of course a big decision to make. Cars are expensive, and many car companies seem to make it their mission to throw confusing and complicated finance options at you in a bid to suck you into what can often be a misguided decision – which may even cost you more than you need to pay. However, if understood correctly and in plain English, many car finance options can help make the purchase easier, as well as helping you stay in control of your finances. One of those options is car leasing.

Car leasing is, in its simplest form, like renting a car. In other words, the leasing company retains ownership of the vehicle and the buyer pays monthly payments for its exclusive use.

That’s the first part of leasing, and in some cases may be the only part: with monthly payments being made until the term of the agreement ends. The monthly price will be comprised of the car value, depreciation and a level of interest.

Some leases have two parts though. These include the first part that we’ve just mentioned and a second stage. The second stage takes place at the end of the lease agreement, where the buyer will have the option of paying a final payment – to pay off the remaining residual vehicle and take full ownership. This is sometimes called a balloon payment. Depending on the agreement this isn’t always compulsory, though, and the buyer can decide not to pay it and not take ownership of the vehicle, which will mean the car is then returned to the leasing company.

As with most sizeable purchases where you don’t pay the full price in one lump sum, you’ll need to pay a deposit. This is often described as ‘3 upfront’, whereby the agreed monthly payment is multiplied by three to calculate the deposit. This amount usually will be broken down into 3, 6, or 9 payments up front as the deposit with the amount you pay up front reducing the monthly payments.

In its simplest terms, that’s the main thing to know about leasing a vehicle. However, there are often restrictions and it’s important to fully understand these before signing on the dotted line. A number of the restrictions are optional – for example, if you pay a higher monthly rate then you can choose to have the car’s MOT and servicing included. Likewise, you will need to set a limit on the number of miles you’ll be driving in the car each year – the higher the mileage, the more you’ll pay each month, as the car will be worth less should you return it to the company at the end of the agreement.

Don’t be put off by the varying terms used for vehicle leasing. Contract hire, contract purchase and lease purchase are all examples of vehicle leasing, but they all have slightly different permutations. Some – as you can tell from the name – include compulsory purchase by the buyer, others include the cost of servicing and some include numerous options for maintenance. As with any vehicle purchase, the most important thing is to make sure you fully understand what you’re agreeing to when you sign the paperwork, and also what the total price you’ll be paying is.

That said, vehicle leasing is an affordable, risk-managed way of buying a car, and offers an excellent alternative to outright purchase. The extra price paid in total can arguably be offset by being safe in the knowledge of maintenance being included, or by many of the other numerous options.

 

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One Response to “Introduction to car leasing”

  1. IVL Leasing says:

    Car leasing is quite cheaper than having the vehicle in cash.

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bG9nZ2VyX0xvZ28uanBnIjtpOjI7czo3MzoiaHR0cDovL21vdG9yYmxvZ2dlci5jby51ay93cC1jb250ZW50L3dvb191cGxvYWRzLzMtTW90b3JfQmxvZ2dlcl9Mb2dvLnBuZyI7fTwvbGk+PGxpPjxzdHJvbmc+d29vX3ZpZGVvX2NhdGVnb3J5PC9zdHJvbmc+IC0gQXV0byBOZXdzPC9saT48L3VsPg==