Car Lease

Car leasing refers to leasing the use of a motor car for a fixed or indefinite period of time. It is commonly offered by dealers as an alternative to car purchase. The key difference in a lease is that after the lease expires, the lessee must return the car to the dealer or buy it.

Rationale

Leasing offers advantages to both buyers and sellers. For the buyer, lease payments will usually be lower than payments on a car loan would be, and qualification is usually easier. Some consumers may prefer leasing as it allows them to simply return a car and select a new model when the lease expires, allowing a consumer to drive a new car every few years without the responsibility of selling the old cars. A lessee does not have to worry about the future value of the car, while a car owner does.

For the seller, leasing generates income from a car the seller still owns and will be able to sell or lease again once the original lease has expired. As consumers will typically use a leased car for a shorter period of time than one they buy outright, leasing may generate repeat customers more quickly, which may fit into various aspects of a dealer's business model.

Lease agreement

Lease agreements typically stipulate an early termination fee and limit the number of miles a lessee can drive (for passenger cars, a common number is 12,000 to 15,000 miles per year of the lease). If the mileage allowance is exceeded, fees may apply. Dealers will typically allow a lessee to negotiate a higher mileage allowance, for a higher lease payment. Lease agreements usually specify how much wear on the car is allowable, and the lessee may face a fee if that amount of wear has been exceeded.

At the end of a lease's term, the lessee must either return the car to the owner or purchase it. The end of lease price is usually agreed upon when the lease is signed.