Car leasing is a fairly simple concept, but many consumers don’t fully understand it and are often afraid of it. Many assume it’s a clever “rent-to-own” scheme created by shady dealers to take peoples money. There are even so-called “experts” who claim leasing is a scam, saying it’s a waste of money.
But in reality, leasing has been used in the business world for decades and is a common financial concept used to finance equipment, buildings and vehicles. But leasing for consumer vehicles has been available for only the last 30 years. One important fact to clear up, car leases are not the same as renting. It’s a method of financing, but slightly more complicated than purchasing a car with a loan.
Understanding how it works will better prepare you to make intelligent decisions regarding leasing.
Understand How Car Leasing Works
Understanding how the process works is key to smart and successful auto leasing, same as any business transaction. It’s important to properly inform yourself to know in which situations leasing smart and in which you shouldn’t.
You need to at least have a basic understanding of leasing concepts, knowing how payments are calculated and knowing how to get a good deal. Otherwise you expose yourself to overpaying, making mistakes and even possibly being cheated.
Leasing in simple terms, is a form of financing, somewhat similar to a loan. Although the terminology is the same, car leasing is significantly different when compared to leasing/renting an apartment or car renting. So attempting to understand car leasing by drawing on your understanding of the others will result in serious confusion.
One fact we can’t stress enough: Don’t consider car leasing unless you have a clear and absolute understanding of the basics of how leasing works. Don’t just lease because the monthly payments are lower.
Why Leasing?
Around twenty years ago, most car consumers never heard of vehicle leasing. Today, about 1 of every 3 new cars, vans, trucks, and SUVs are leased. When it comes to luxury vehicles, the rate jumps up to 70-75%.
After experiencing a slowdown a few year back, vehicle leasing has again been growing in popularity. An easy way to notice this growth is just to look at the number of lease ads everywhere. Another reason why more people are turning to leasing is the economic uncertainty, forcing people to look for more affordable ways to fill their transportation needs.
Leasing provides many benefits and serves as an alternative method of financing. One of the biggest advantages of car leasing is the significantly smaller monthly payments when compared to a traditional loan. But you shouldn’t make your decision to lease just because of this alone.
Why is Car Leasing Popular?
There are two main reasons for the popularity of car leasing. The first is the constantly increasing prices of new cars over the last few years, which puts more and more cars out of reach for average buyers. The second reason is increased prices of food and housing which leaves less money for other life necessities like transportation.
Finance companies and car manufacturers have come to the rescue in a huge way with vehicle leasing programs. These new programs are essentially modified versions of business leasing that’s been around for years. Which is also the reason for the similar language between the two concepts.
In summary, car leasing has grown in popularity because it gives a way for people to drive the cars they want, which are better than they can afford to buy, for less money and headaches. Lower monthly payments is a huge factor in the attraction, but there are other important benefits as well.
Is Leasing For You?
There are many advantages to leasing, but it won’t fit everyone’s lifestyle and needs. Also, car leasing tends to be more complicated than car purchase loans, and demand greater preparation and care to get the best deal and avoid problems. If you want to switch your car every 3 years to always drive the latest model while paying smaller monthly payments, then leasing might work for you. But if you want to own a car for a long time, be able to customize it and drive a lot of annual miles, then leasing isn’t going to work.
