A lease is a contract between two parties where an item or product, such as land, property, vehicles or services, is provided to another over a set amount of time for a set price.
A car lease is in effect like a long term car hire. You are borrowing the car from the provider for a set amount of time, paying monthly payments for the use of the vehicle. A lease tends to be a lot longer than a normal car hire, which normally lasts a few days or weeks at a time. You also generally have more flexibility in how you use a car on a lease than on a hire.
On a standard finance package, you in essence own the car across the length of the agreement. Even though you are paying it off in monthly repayments, you can use the car however you wish. That means no mileage limits, condition requirements or special controls like only servicing with selected garages.
On a lease agreement, it’s assumed that you will return the car at the end of the agreement to the lender. That means you will have to keep the car in a certain state of repair and condition as part of the requirements of the lease agreement. For a Personal Contract Purchase (PCP) deal or something similar, the amount you pay over the length of the agreement is based on the value of the car at the end of the agreement. So the lender will want to ensure the value they predict at the start of the agreement is matched when it’s time to return the vehicle.
The biggest advantage of a lease is that you can return the car at the end of the agreement with little fuss. That means you can change your car more regularly, or decide to continue with the car you leased. If you change your car regularly, you can take advantage of better quality safety and fuel economy developments in the newer vehicles. If your family grows, you can opt for something bigger. Or, if you change jobs, you can choose something that’s better suited for the long commute. And if you like the car, you can just start a new lease deal on the vehicle, and can even arrange to pay for the vehicle outright at the end of the agreement.
The biggest disadvantage of a lease is that you don’t in essence own the vehicle. You are hiring the car and so must follow the usage requirements as set out by the company you leased the vehicle from. That can range from annual mileage limits, to condition requirements. You may also find it harder to change the terms of your lease if your requirements change during the agreement. You also end up paying a lot of money into a product that you won’t get any money back for. If you buy a car outright, you can resell and get some of the money back. In a lease, you cannot do this.
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