In general, leasing is mostly described similar to renting a vehicle. However, this conception is not fully correct. As per experts, it is better to express the process as a unique method of financing a car. Differentiating from the traditional car loan, leasing company provides you financing on the usage of a car, and not for buying, that eventually you pay in the continuation of the process. The use is determined by the residual value of the car or the depreciation of the parts. You are supposed to pay for unwarranted wear and tear caused during the lease. Omari Betts , leasing consultant at ChevyChaseAcura says, a leasing company that owns the car and leases the same to you as per agreement works similar to a finance company. Apart from private leasing companies, numbers of public and private banks these days offer financing as well as leasing services.
Obtaining a car loan for buying purpose requires you paying an initial down payment while you pay the remaining value of the car in installments. The entire payment you make in the form of down payment and installment include the principal amount of the car plus the charges on financing the same to a general loan. Under a leasing contract, you pay for using the car in addition to charges on financing. You are not paying the principal. Therefore if the term is three years, you basically pay the depreciation amount and return the car to the leasing company.
As a owner of the car, the leasing company pays the principal amount to the manufacturer or car dealer. Therefore, the cost of financing under lease is higher than general car loan. Simply understand, if the buying price of the car is $30, 000; lease is for three years and depreciated value is 60%, you pay for $18,000, while you will have to pay interest on the full value of the car. However, the main advantage of leasing is once the term is finished you return the car, leaving all hassles ofreselling the vehicle behind. Most of the leasing companies offer brand new and used cars under leasing schemes. The used cars are highly demanding to consumers for outright purchase as well as for further leasing againstcheaper rent.
Typically, you can come across two dissimilar types of leasing. These are open-end and closed-end leasing options while closed-ends are widely popular in the market because of its uniqueness.
Closed-end leases allow the lesser to return the vehicle on termination of the lease. Apart from unwanted, unwarranted or excess ‘tear or wear’ or excess mile usage, you are not expected to pay anything extra over the contract. Omari Betts considers that for individuals, closed-end leases are simply ideal.
Open end leases are mostly chosen by the business enterprises since the vehicles used for business purpose tend to stumble upon number of tears and damages. In addition, most companies cannot stick to the restricted usage of mileage as stated in terms and pay excess for this or on its diminished value.
Understanding the fundamentals of leasing is significant for anyone intended to opt the scheme. In comparison to traditional financing, leasing is a great option for individuals as well as business persons, and they try making the best of the options given to them.