All You Need To Know About Car Leasing

These days, it has become easy to own items out of our price range, from clothes, to electrical goods and now even cars. Through the joys of financial leasing, we are able to effectively borrow items from high street stores and car dealers, on the agreement to pay back the value, plus interest. Just like taking a mortgage on a house, car leasing is an excellent way of being able to own what we can't afford to buy outright, through the repayment of a few monthly directly debits.

Technically car leasing is a fancy way of saying you will be renting a car. However unlike hiring a car for a few days and making one payment upfront for the pleasure, car leasing involves a series of monthly instalments, usually over 12, 24 or 36 months. These instalments will reflect an interest rate as well as the depreciation of the value of the car you are leasing.

There are two kinds of car lease available, closed and open end leases. Closed end leases mean you continue with your repayments until the value has been paid and then you simply hand back the vehicle. However, depending on any excess mileage or wear and tear, there may still be some additional charges to cover at the end of the lease. If you decide you liked the car and want to buy it off the leasing company, you have the option to pay the residual value of the car (plus a processing fee). Most people tend to choose this option as it allows them to have something at the end of the payments.

If however, you are taking out a lease for commercial or business purposes, then you may wish to opt for an open ended lease. Here, the value of the car will be determined at the end of the contract, as opposed to the start of a closed end lease.

There are many reasons why car leasing benefits consumers. Driving around in a lease car means you can get your hands on a motor you couldn't usually afford. Perhaps you have a large family and need the extra space that you couldn't afford to pay for in one outright payment? Or perhaps you have moved to a rural area and need a car to get around but can't afford to buy one? Or, maybe you just fancy an upgrade? With car leasing, all of these become possible.

Car leasing also means that monthly car payments are cheaper than what you would expect to pay on a purchase. This is because on a lease, you aren't actually paying for the entire car, just a portion of its value over your lease period.

Car leasing also means you have lower costs to pay upfront. Usually the down payment is relatively low, compared to purchase cars.

While this all sounds great, there are still a few things to be aware of. Before you become signed into your lease, make sure you check if there are any early termination fees. Some leasing companies will require you pay off the remainder of the car lease contract before releasing you from the lease. Others will require a flat rate termination fee. Make sure you read all the fine print before signing on the dotted line.

Car leasing can also incur higher insurance rates as you are required to have more coverage than usual so be sure to check these rates.

Most leases will also have a limit on the number of miles you may drive, usually anywhere between 12,000 and 15,000 allowable miles per year. Excess miles will incur extra costs so if you are planning on covering a lot of distance, you may also need to enquire about the additional charges.

While there are a few factors to watch out for before you sign up to car leasing, these are not disadvantages. They are just points you should ask about before you drive away in your new car, so you know what you can expect from your contract.

Dominic Donaldson is an expert in the finance industry.
Find out more about Car Leasing and the benefits it can bring consumers who either can't afford to buy a car outright or simply don't want the responsibility.