How does car leasing work?
How does car leasing work?
Car leasing is not the same as car buying or renting a car. Whether you are about to lease a new car or deciding what to do at the end of your current lease, it is important that you understand the basics of car leasing. At Pfaff Leasing, our against do a great job with explaining the car leasing process with our customers that may not be as informed as others. Our agents are professional, experienced, and knowledgeable about everything to do with the car leasing industry. With locations in Vancouver, Calgary, and Toronto, our customers have plenty of options when it comes to leasing their next vehicle. In this blog by Pfaff Leasing, we share some information about how car leasing works so that you can better understand the process and the advantages it can yield.
First off: What is a car lease?
A car lease is an arrangement in which you pay your leasing company for the right to drive your leased car. Your monthly payments do not build equity (i.e. ownership) for you in the car. Rather, as you make your monthly payments you are simply upholding your side of the bargain that allows you to drive the car for a specified period of time, usually two or three years.
What am I paying for with a monthly lease payment?
The two primary factors that determine how much you pay per month for your leased vehicle are its depreciation and your money factor:
Like all cars, as you drive your leased vehicle it depreciates in value, meaning the price it could sell for on the open market decreases. To account for this loss of value, your leasing company requires you to pay for the value it expects your leased car to lose as you drive it. When you negotiate your lease, you and your car leasing company agree on how much the car is worth at the beginning of the lease and your leased company estimates how much it will be worth at the end of your lease. Ultimately, you have to pay for the difference between the car’s value at the beginning of the lease and what your leasing company expects it to be worth at the end of your lease.
The money factor:
The other big piece that determines your monthly lease payments is your money factor or lease factor. The money factor on a lease is like the interest you would pay if you took out a loan on a car. You pay money factor to compensate the leasing company for using its car and for the risk it takes by trusting that you will make all of your payments. Money factors are not expressed in percentages the same way that interest rates are. Instead, they are written as long decimal numbers.
Other additional car lease fees you could have to pay
Lessees are not always familiar with car lease terminology. Your lease agreement likely lists many fees that you have to pay at the beginning and at the end of your lease. At the beginning of your lease, you likely have to pay multiple lease inception fees such as title fees, acquisition fees, security deposits, and others. At the end of your lease, you usually have to pay one fee no matter what you do. If you purchase the vehicle, you will have to pay a purchase option fee, and if you return the car to the leasing company, you will have to pay a disposition fee. Moreover, if you return the vehicle, you may have to pay a mileage fee if you exceeded your kilometer limit or a wear and tear fee if your leased vehicle is in poor condition.
Car leasing can be a simple process if you know what to expect. At Pfaff Leasing, we make it easy for our customers to understand how car leasing works and to get behind the wheel of the vehicles they want. We encourage you to continue browsing through our website to check out the inventory of vehicles that we have at our Vancouver, Calgary, and Toronto facilities.
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