Cars

Car Lease: What’s the best one for you?

What is a car lease?

A car lease refers to auto financing whereby you can rent a car from a given dealership for a certain period and number of miles.

Normally, you are required to make the car lease payments every month so that the dealer allows you to continue driving the vehicle.

When your car lease comes to an end, you have the option of returning the vehicle you’ve been using to the dealership or buying out your lease altogether if you have decided you want to keep it in case your lease gives you that option.

Why should I get a car lease?

There are many benefits of getting a car lease. They include:

You pay less every month with a car lease

Compared to buying a car, you will pay less money every month. That means you will be able to drive a vehicle around that you might have not been able to afford in case you considered buying.

A car lease means low maintenance and you don’t have to pay for repairs

Usually, the vehicle’s manufacturer has a bumper to bumper warranty which you can enjoy if you lease the car for only 36 months or a shorter period.

As such, no need to worry about repairs and sometimes, if you’re lucky, the manufacturer of the car will offer you free car maintenance for the first few years.

When you’ve used the car you won’t experience selling hassles

Once your car lease comes to an end, all you have to do is return the car to the company that leased it to you. The value of the car is none of your concern at this point so you do not have to worry about selling the used car.

In some cases, the value of the car is overestimated by the leasing company. That means you pay less for the lease and the loss falls on the leasing company.

A car lease helps you enjoy tax benefits

In case you decide to use your leased car for business, you can always write off your lease payment as a tax deduction.

Even if you don’t intend to use it for business, you will find that most of the time, you’re only taxed on the usage part of your lease so no taxes on the vehicle’s full price.

A car lease lets you drive the latest cars

If you’re a car lover, you will be happy to know that you can drive a new type of car, the latest models even. This enables you to enjoy the newest advancements in the automobile sector.

What are some of the drawbacks of a car lease?

While getting a car lease has many benefits, it also has some drawbacks. They include:

A car lease becomes expensive in the long run

Leasing a car means just paying for its usage for about two to three years after which you have to return it, lease another one or buy yourself a car.

This means you will still need to keep paying off monthly fees which you could have avoided if you just bought the car and finished off the loan payments.

Car leases only give limited mileage

Whenever you get a car lease, you are mostly limited to between ten thousand to fifteen thousand miles in a year.

Should you go beyond the set mileage, you will have to pay a penalty.

It comes with a high insurance cost

It might not seem like it but leasing a car could be more expensive in terms of insurance payments.

Many leasing companies around will want you to obtain higher insurance covers on vehicles, which would mean higher insurance payments compared to those of a bought cars.

It’s hard to cancel a car lease

Signing a car lease is a deal that takes a process to do. As a result, walking away from the lease is also difficult and comes with very tight penalties.

If you chose to just buy a car, you could easily sell it if you no longer want. For a car lease, it’s almost impossible to end the deal in most cases.

A car lease requires one to have good credit

In case your credit is questionable then you are not a good car lease candidate. That’s because the financial costs during leases are usually higher compared to financing of a loan. That’s because you are not required to pay any principals.

A lot of the leasing companies will want you to have some good credit and be financially stable.

Types of car leases

There are different types of leases namely:

Closed-end car lease

Features

The leasing company is in charge of financial risks
Available to private customers
Flexible
Low financial risk
Lower monthly payments

A close-end car lease is often the only car lease available for private customers. For this, the leasing company will be responsible for all the financial risks that come from the car lease.

You get a preset residual value at the start of the car lease meaning when the time comes for you to return the car, that’s all that will be required of you. No need to worry about the car’s market value.

That explains why it’s the type that makes the most sense to customers as it’s very flexible and has a lower financial risk.

Monthly payments for this car lease type are also lower because of the high residual value.

Open-end car lease

Features

Lessee is financially responsible for risk at the end of the lease
Lower residual value
Higher monthly payments
More mileage allowances
Better for businesses or fleets

An open-ended car lease is very common for businesses compared to private owners or consumers.

For this, the lessee is required to handle the finances for the risks once the leasing period is over. Here, the vehicle’s market value will be carefully assessed as lower than what was agreed upon in the initial car lease agreement, meaning the lessee covers the difference.

These car lease types have a lower residual value and higher monthly payment requirements.

They give you more mileage coverage and are therefore a great option if you’re leasing out your car with business in mind.

Our verdict

If you’re a regular driver with no intentions of using your lease for business, it’s better to go for a close-end car lease. However, if you are leasing your car for business purposes, an open-end lease will work best for you. That’s especially if the vehicle will be part of those the company uses and will be driven by more people for those long distances.