How Does Car Leasing Work?

Car leasing is a popular way of financing a car as buying a car becomes increasingly expensive and unaffordable for many people. Leasing a car is essentially a long-term rental of the car and at the end of the agreed period you give the car back to the leasing company who then will sell it on or return it to the manufacturer. It’s a popular alternative to buying a car as you can often get a brand new car and the costs work out cheaper than buying the car outright.

Getting started

Car leasing is no more complicated than buying a car. Before you commit to anything, do a little research into the kind of car you want to lease and how much different companies quote for it. When you get in touch with a leasing company, they will tell you what cars are available, in the same way a car dealer will.

Once you choose the car that you want, you then agree to pay a monthly fee over a set period of time – usually two or three years are common lease lengths, though longer contracts are sometimes available. In addition to this, you must agree to a mileage limit which is typically 10,000 or 20,000 miles. If you go over this limit then you pay an extra fee when your lease comes to an end. Even if you have a poor credit rating you can still consider car leasing through specialist companies like Ultracars.

Before you make any payments, you must have a credit check done on you or your company. Once this is complete you usually have to make an up-front payment of three or six months rental. This usually works out cheaper than putting a deposit down on a new car, though it does depend on the type of car you want to lease.

One of the benefits of leasing a car as a business owner means that you can offset the cost of leasing your car against your taxable earnings.

What you get

When leasing a car you can generally get a more upmarket car for the same price as financing a lower-end car. This is because with a lease you’re paying the difference between the retail price and residual price, whereas with a finance deal you’re paying for the entire cost of the car usually over the same sort of period.

However, leasing isn’t for everyone; it makes sense in the short term but if you don’t know whether you can afford to pay the monthly fees or want to eventually own the car outright, buying or financing a car may be the best option for you.

A lot of the specifics of leasing depend on the type of car that you’re hoping to get.  Sometimes, it can actually make more sense to buy certain models of cars that are less likely to depreciate in value instead of leasing them.

At the end of the lease

Once your lease is up you simply hand the keys back to the leasing company and they take care of everything from there. They will sell the car on or hand it back to the manufacturer and won’t lease it again. Normally you can’t buy or keep the car at the end of the lease; however there are certain types of leases called PCPs that let you do this. PCPs are more costly than a regular lease as the manufacturer or dealer has to guarantee a price you’ll pay for a car at the end of the contract.

However you decide to pay for your next car, leasing can be a viable option if you’re happy with not keeping the car at the end of the contract. It can also save you money in the short term if you don’t have all the money to buy a new car outright.

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