Leasing: Lower upfront costs may come at a price later on
If you’verented a vehiclefor the day or a weekend, you know the drill: you pay a set charge and – unless you go over the mileage limit or ding the fender – when you’re done you simply hand back the keys. Leasing is essentially like renting but for a longer period of time. You get to enjoy the car while it’s in your possession but once the fixed-term lease agreement runs out, you simply bring it back and walk away (or you may have the opportunity to buy it outright with cash or financing).
The main benefit to leasing is there are few upfront costs – usually just a first month’s payment, a refundable security deposit and some other fees1– and monthly lease payments are almost always lower than financing payments2, which we’ll talk about below. That’s because, with a lease, you’re only paying for a vehicle’s depreciation during the lease – usually 2 to 4 years.
There are still a few catches, however. The biggest may be on mileage – a lease agreement usually includes a strict kilometer limit and if you exceed it by the end of your lease, you’ll have to pay some potentially hefty penalties3. Also, if you don’t take care of the vehicle and wear and tear is beyond what’s set in the repair standard outlined on your lease contract, there could be additional charges4.
Finally, sometimes plans change and you may find yourself wanting to end the lease early. If you do, you’ll need to pay the outstanding payments on the lease or an early termination fee.5 (There are ways around this: you can try totransfer the lease to a family memberor friend, or buy the car outright and then try to sell it – but the process can be a hassle.)
