Leasing is similar to renting a home. You pay an entry fee and monthly usage fees, but do not own the property. After the expiration of the leasing contract, you can buy a car or choose another one. Finding a company is easy since each of them has a website, and major market participants have their own auto leasing software with personal online accounts and mobile applications.

According to Statista data for 2018-2022, in the US, one in four cars is already used under a leasing contract. Cox Automotive predicts leasing will account for 21% of new car retail sales in 2023. This is an affordable opportunity to drive new model cars with modern design, equipment and safety standards and change them regularly.

Growing interest in car leasing in the world

Lease companies compete for the attention of drivers: some calculate the amount and schedule of payments individually, others invest in vehicle leasing software to make cooperation comfortable and communication fast. The specific benefits of leasing depend on the company, but there are main categories that distinguish leasing from the background of buying a car on credit.

  • Low entry threshold

The down payment when buying a car can reach 50%, which is a significant blow to the budget. Leasing contracts offer to pay only the first monthly payment, taxes, title and registration fees at the time of signing. The amount of these payments is usually less than the down payment in the case of buying a car.

  • Credit history is not a hindrance

If your credit history is not good enough for bank approval, leasing will be much easier. In addition, the car will not be considered the property of the user, and it will not be possible to seize it.

  • Time to make a deal

It takes more time to process a loan: the bank requires a large number of documents to be collected, and the verification time is sometimes calculated in weeks. The larger the amount, the longer the process. For leasing, the package of documents is smaller, and the application is reviewed in just a few days.

  • Reduced payment rate

Monthly lease payments are usually lesser than loan payments. Instead of returning the cost of the car in parts along with interest, you pay only tax, the amount of rent and depreciation. If you have a good credit history, the leasing company can help you and reduce the interest rate on monthly payments or change the payment schedule.

  • Lower operating costs

The manufacturer’s warranty usually covers the entire lease term, and therefore maintenance is cheaper.

  • Enhanced security

To conclude a leasing agreement, you need to have comprehensive insurance to fully compensate for the cost of the car in case of loss or theft.

  • Cumulative discount packages

A slightly more expensive car with a lot of options from the manufacturer may turn out to be cheaper than the base model when leasing.

  • No problem with resale

When the leasing contract comes to an end, you can buy the car back or return it and choose another one. No hassle of finding a buyer for a used car.

  • Always new car

You can drive a premium car or a model that has just rolled off the assembly line, and when the novelty goes out of fashion, choose the next one. The lease agreement is most often concluded for a period of 24 to 48 months. The driver uses a car with the latest technology and safety standards and easily changes it following the trends of the car industry.

Requirements of leasing companies

If the driver has leased the car and does not comply with the requirements of the contract, the lessor will terminate the contract and take the car away even faster than the bank would have done. Here are a few points that may cause additional costs or lead to the termination of the contract.

Customization

The lessee does not own the car, and therefore does not have the right to alter it and change its appearance. You cannot, for example, repaint the car, install a stereo system, or make interior modifications.

Excessive wear

Each contract outlines the acceptable level of wear and tear, as well as the types of damage that must be paid for before the vehicle is returned. If you do not get your maintenance done on time, or if the car’s condition is outside the “normal” range described in the contract, you will have to pay a penalty.

Excess mileage

The contract specifies the number of miles that can be covered during the lease. If you exceed it, the company will charge you a surcharge for each additional mile. To estimate your yearly mileage in advance, first calculate the number of miles you cover in one week with standard travel itineraries. Then multiply this amount by 52 and add another 5% for unplanned trips or more if you intend to travel during the lease.

Late payment

Missing 2 monthly payments gives the lessor the right to terminate the contract.

Subleasing

without permission from the company is also a reason for terminating cooperation.

If the driver receives an official notice from the lessor demanding to fix the violations of the concluded contract and does nothing during the period allotted for this by the contract, this will lead to termination of the contract and additional costs.

The requirements of transport leasing are quite strict, because the user has a choice: to buy the car or return it, and the company is reinsured from the fact that the property is returned in an improper form. And the software for car leasing software creates a convenient environment for storing and exchanging all important information between the parties to the contract.

Financial terms of car leasing

Each clause of the leasing agreement should be discussed with a company representative or, at least, studied in writing: in its entirety, including the fine print. Information about the financial side of the transaction is contained in the first sections of the contract. Pay attention to these elements:

  1. Amount payable upon signing the contract: here is the initial payment, as well as commissions and discounts that affect the payment.
  2. Redemption price: the amount for which the company offers to purchase the car at the end of the lease, as well as the associated fees.
  3. Capitalized cost: the price of the vehicle against which depreciation is calculated.
  4. Recycling Fee: the cost to the leasing company of preparing the leased vehicle for resale. When concluding a new lease, this fee can be waived.
  5. Early termination fee.
  6. The amount of the monthly payment and a description of the factors that influenced its calculation.
  7. Residual value: the expected price of the car at the end of the lease term, which takes into account the “normal” depreciation.

Do not make any payments without the original contract on hand. The leasing contract must be signed by a representative of the company.

Conclusion

Determine the type, make and model of the car you are interested in. Evaluate how it fits your driving style, road conditions and planned mileage. If the cost of a car is too high or you need this transport for a short time, study the offers of leasing companies.

Look at specialized websites or vehicle leasing software to find a contract with the right terms. Review the monthly payments, mileage limit, buyout price, early termination fees, and fees charged by the lessor. The cheapest deal may not always be the best deal, as it may not take into account your needs: distances, road risks, wear and tear levels, and rental period. Compare in detail, discuss the conditions with consultants and you will definitely find yourself driving the desired car!