What is a Car Lease?
When you keep expressing your desire that you want to commute to and from your workplace by a car that is your favorite, you may get advice from certain quarters that you can go for a car lease. But before you decide this effect, it is imperative that you should know full well about this car lease concept. Let us find out what this concept is all about.
The concept of a car lease explained
A car lease is almost akin to renting a car. You make regular payments for using the car for a certain period and once the period ends, you will be returning the car. In general, the time period for which a car is leased is 2 or 3 years. Of course, at the end of the period, you can decide to buy the vehicle or return it to the car dealer from whom you have leased it.
In short, if you opt to go for a car lease, you can drive your favorite vehicle without shelling out a huge sum or without availing a loan for buying it. In certain case, you may have to make a small up-front payment and it may typically be less than 20% of the value of the car that you intend to use. Of course, you will be making monthly payments during the lease term. In a nutshell, you are renting the car for the time period and not buying the car.
Experts advise that buying a car is a better option than leasing it. But if you desire to drive a new vehicle every two or three years, leasing may be a worthier option but you should be certain that the costs you incur for leasing will provide the right value to you.
Does a car lease belong to the category of debts?
To this question, experts answer in the affirmative but they hasten to add that a car lease is considered a debt but only in the technical sense. It is because you owe an amount under a contract. But the good news is that if you go for a home mortgage, your lease payment will not be taken into account while calculating your debt-to-income ratio, provided you terminate the lease contract within a period of 10 months. On the other hand, a real loan will continue to be taken into account while calculating your debt-to-income ration till you repay the loan fully.
Are there possibilities of negotiations in a car lease?
Yes. As you do negotiations while buying a car, you can discuss, negotiate and agree at a favorable cost even while trying to lease a vehicle also. Of course, there are other factors to be considered while negotiating the lease cost. The simple arithmetic is that the lower the whole lease amount, the lower will be your regular lease payments.
Points to know before you lease a car:
- When you lease a car, the repair costs, if any that you may incur, will be lower because the warranty of the car will cover almost all these costs.
- You will be paying low sales tax as well because the sales tax you have to pay is only for the money you pay as your lease amount and not for the entire cost of the car.
- Compared to purchasing a car shelling out huge money, you will be making lesser payments, that too, on a monthly basis.
- In general, a car lease will not involve a down payment. But even if it is there, it will be very low.
What is the main benefit you will derive by opting for a car lease?
The main benefit is that you will be incurring low out-of-pocket costs while acquiring or maintaining the vehicle. Further, you can enjoy the pleasure of driving a new vehicle once every two or three years.