How Car Lease Works

Car leasing is increasingly becoming a popular alternative to buying a car these days. With the financial flexibility and the great car options it promises to offer, many are preferring to lease cars as an answer to their travel needs. However, as easy as it may sound to be, car leasing is not as simple as renting a DVD in the movie the shop. To give you a better idea about this topic and at least help you make a well-informed leasing decision, we will discuss the basics of car leasing here.

So what does car leasing means? Car leasing, by dictionary definition, is letting or renting a vehicle for a fixed or indefinite period of time. But while the term of the lease contract can be indefinite, most car lease deals are made with a fixed term of use, which can be renewed or continued if the lessee wants to.

Leasing, in some aspects, may seem to be the same as renting a car. However, car leasing and car rental must not be confused as the same. Instead of defining leasing as a process of renting a vehicle for personal use, it would be more appropriate to define it as a method of financing the use of a vehicle for a certain period of time. The most notable difference between the two transport options can be seen in their contract terms and payment methods. In car rental, you will only be paying the rental rate according to mileage and the number of days or hours that you used the car. Whereas in car leasing, you will be paying monthly instalments, which takes into figure the insurance, interest rates and the depreciation value of the vehicle you are leasing.

The car leasing process -- just the way you would approach a car dealer -- starts with the customer contacting the leasing company about the vehicles they have. The lease will be obtained for a certain period, which usually runs from two to three years. The car that one would wish to lease will have a price tag. If you intend to lease a brand new car, the price will be based on the actual retail price of the vehicle if it was sold. But if you opt a used car lease, the price will be based on the vehicle's residual value (the present market value of the car after it has been depreciated).

After the terms and conditions of the contract are discussed and agreed upon, you then make initial payment and bring home the car. At end of the term you simply have to return the vehicle to the company, or renew the contract, or get a lease on a new car.

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