Many of us like the freedom of movement that comes with driving a car. However, sometimes make a car purchase doesn’t seem like the right way to go. One of the ways that you can get access to a car without purchasing it is through leasing.

What is a Car Lease?

In a lot of ways, leasing a car is a lot like renting a car. You pay a monthly fee for driving the car, and at the end of the term, you return the car to the dealership. In some cases, you might also have to pay a certain amount of money at the beginning of lease, or a fee at the end of the lease.

Realize, though, that with a lease the car isn’t yours. You might have limits on how many miles you can drive each year (and driving more results in fees), and you normally have to take the car in for regular maintenance. And, at the end of the lease, all of the money you paid in is gone. You don’t have any ownership in the car.

Advantages of a Car Lease

In spite of the fact that you are paying money for something you don’t actually own, a car lease does have some advantages. For those who like to get a new car every three years or so, a lease can be just the thing. It’s all about what is important to you. A lease can help you enjoy a new car regularly, without the hassle of financing or trying to sell or trade in the old car.

Another advantage is that, often, you can lease a car for a lower monthly payment than you would see with a loan. The cost of a new car can be quite high – especially once you figure in the interest payments. With a lease, you can often find a more manageable monthly payment. You can also find affordable automobile insurance online to keep your total monthly costs low.

In some cases, it is possible to turn a lease into a purchase. Some of what you have paid in will be considered as a reduction in the purchase price. Make sure you understand the terms of this transaction before deciding to go through with it.

Disadvantages of a Car Lease

The biggest disadvantage is the fact that you don’t actually own the car. You can’t recoup any of the money you spent during the time of the lease by selling the car, or getting value for a trade-in. You pretty much pay for the privilege of driving the car around.

Another disadvantage is that there might be hidden fees associated with your lease. Read the fine print in order to avoid problems related to fees and requirements. Some lease agreements are very difficult to understand, and you need to make sure you know what you are getting into.

Also, consider that you can’t do what you want with a leased car. You can’t modify the car in any way, and you might be limited in how many miles you can drive. The leased car still belongs to the dealership, and the dealer hopes to sell the car to someone else once you have returned it.

Bottom Line

Whether you lease or buy a car, you need to decide what you want to accomplish. For some people, leasing works really well. They get regular new cars to drive, and don’t have to worry about depreciation. Buying works well when you want to drive the car for longer. What you pick depends on what works best for your situation.

Miranda is a freelance writer and professional blogger specializing in personal finance topics. Her blog is Planting Money Seeds.



Mike, aka The Dividend Guy, authors The Dividend Guy Blog since 2010 and manages portfolios at Dividend Stocks Rock. He is a passionate investor.