How Do Auto Leases Work?


Car leases are an alternative to buying a car. When you lease a car, you can choose to trade it in for a new leased car at the end of the lease term, turn the car in and walk away, or buy the car outright at the end of the lease.

Many people who trade cars in every one or two years view car leasing as a viable alternative since they can structure the lease to suit their habits.



The contract for the leased car spells out the terms. The customer may have to come up with a down payment, usually called a sign-on fee, and he will agree to lease the car for so many months or years at a particular rate.

When the time is up, he must return the car and sign up for a new lease to get a new car. He continues with this process until he no longer wants to lease a car.

How Do Auto Leases Work


Turn Car In

If the customer chooses to turn the car in and walk away, she is finished with the lease. However, she may have additional money to pay. Most leases write in the terms that you can drive the car only so many miles per year.

If you drive over that amount and want to walk away from the lease, you must pay mileage rate for all overage miles at the rate set in your lease.

Turn Car In


Purchase Leased Car

You may purchase the car outright at the end of the lease for the residual value. Your original lease agreement contains the residual amount. The dealership that leased the car to you may not finance the car so you may have to get your own financing or pay cash for the residual value of the car.

Purchase Leased Car



Leases can be a good option for specific reasons such as trading a car in often. However, be careful when leasing a car; make sure you read the contract carefully especially noting how many miles per year you may drive the car and residual value of the car.

Ask questions about anything you do not completely understand. If you plan to keep the car for more than a few years, buying it outright may make the most sense since you do not have to worry about driving over the number of miles allowed and you do not have to worry about obtaining financing for an older model car.

New-car rates usually are lower than rates for older model cars.



Check out the video version of this article on YouTube : How Do Auto Leases Work?


Leave A Reply

Your email address will not be published.