Understanding Car Leasing - 5 Facts You Need to Know

Leasing a car is like paying to rent it for a period anywhere from two to four, or sometimes, five years; you get to use it during that time, but you don't own it at the end of the lease.

The main benefit to lease is that your car lease payments will be lower than the payments you would be making if you were to take out a loan to purchase that same vehicle. Leasing can seem very complex and confusing if it's your first time, and all the paperwork the dealership will have for you to sign will not help to ease your anxiety, which is why it's important to understand leasing before jumping into it.

1. One thing to consider is the length of the lease that will be appropriate for you. Car leases require you to make monthly payments for a specified amount of time, which can range anywhere from 24 months up to 60 months.

2. Another thing to consider when thinking about the length of lease that would be best for you is the number of kilometers you will be using. Most leasing companies offer low kilometer leases, standard kilometer leases and high kilometer leases. It is important to do some figuring and find out approximately how many kilometers you will need, because if you end up going over at the end most leasing companies charge anywhere from seven to ten cents per kilometer you go over on the agreement, which can get pricey very quickly.

3. In contrast, if you don't calculate the number of kilometers you are going to be using, you could end up paying too much as your monthly payments will be lower with a low kilometer lease because the residual value at the end of the lease will be higher.

4. You will also want to think about how well you take care of your vehicles when considering leasing. Leasing companies understand that it's normal for a vehicle to show some signs of wear and tear after being used for a few years, but only some not exceeding $1000 or $1500 worth of minor repairs. You are expected to keep the car in good condition, meaning you can't return it with a fender missing and expect to not have to pay for it.

5. You will also want to be clear about your options at the end of the lease. In many cases, you will be told the amount it will cost you to buyout the vehicle at the end of the lease. You will also have the option to simply walk away, or to step up to a new vehicle.