Leasing a car is much like renting, rather than buying, a home. You have use of the vehicle for a fixed period of time, just as you would a rental home. You have to return it at the end of that time in good condition. Both involve legally enforceable contracts. However, auto lease contracts usually include many more limiting provisions and one-time fees.
Lease Payments Are Typically Cheaper
Lease payments are typically lower than auto loan payments. If you buy a $20,000 car and finance the entire amount in a three-year loan, you'll have to pay the entire $20,000 - plus interest, over the course of three years. If you lease the same car for the same amount of time, the dealer calculates what the car is likely to be worth three years from the beginning date of your lease contract. If the car could be worth $8,000 in three years, you have to pay only $12,000, or the difference between the two values. A "money factor" and sales taxes are added to each monthly lease payment.
Leasing Fees Can Add Up
Lease agreements usually include several additional fees because, technically, you're just borrowing the car. If you drive a great deal and go over a certain number of miles during your lease term, you usually have to pay an extra fee. The additional miles will lower your car's value at the end of the lease, and this value is what your payments were based on. Also included are acquisition or "sign up" fees, disposition fees that cover some of the costs of selling your car after you turn it in, and extra fees if your vehicle suffers more than average wear and tear.
You Can End a Lease Early
You can end a lease agreement early, but you'll pay a penalty. Car leases usually involve early termination fees. Contractually, the early termination fee is due at the time you terminate the lease. If it amounts to thousands of dollars, be aware that you can't pay it off monthly. Some contracts allow someone else to assume the lease for you. However, the procedures and costs for this vary, so ask a lawyer to look over your contract before you enter into such an agreement.
You Owe the Full Amount of the Contract
Leased vehicles can be repossessed just like financed vehicles. If this occurs, you remain liable for all the remaining payments. The leaseholder can take you to court to collect this money, just as an auto purchase lender can. Unlike purchased vehicles, you don't have the option of selling the vehicle if you find you can no longer afford the payments.
A Consumer Law Attorney Can Help
The law surrounding leasing rather than purchasing a car is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a consumer law attorney.
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