Those that are proponents of leasing cars as opposed to buying them, tend to point out that when you buy a car, it depreciates in value as soon as you drive it off the lot. However, when leasing a car, you are only paying for the expected depreciation. This is why leasing a car can sometimes make more sense than purchasing a car at its full value.
Leasing a car means that you are paying to make use of the car for a specified period of time. When you lease a car from a dealership, the dealership is essentially selling the car to a lease agency. The dealership is generally rewarded with a commission for passing on the business.
Once you have leased a vehicle, you begin making monthly fees. The payments are determined by an estimate on the amount of depreciation during the time period that you have the car. For example, you lease a £30,000 car and the agency works out that the car will be worth £21,000 after you return it. This particular analysis means that your monthly payments would be aimed at paying that £9,000 dollar difference. Conversely, if you were to purchase the same car for £30,000, as soon as you drive it out it is worth a lot less. All cars depreciate at the same scale irrespective of whether they are purchased or leased. So, if you.re not concerned with eventually owning it, leasing the car is generally the better economic decision in terms of having a monthly payment that is lower.
As well as depreciation, other fees and charges are factored in when calculating the payment per month. The biggest additional charge is the finance charge; a varying percentage based generally on your credit score. Other lesser charges include tax and licensing fees. You may also have to pay if you go over the mileage limit or if you damage the car. Almost all leasing agreements require car insurance to be kept up-to-date on the vehicle.
When finalizing the leasing agreement, you may be given an opportunity to buy the car. The purchase price is generally the value of the car after the depreciation has been calculated. You may opt to lease the car for a second time, which again means estimating the depreciated worth at the end of the leasing period.