This Is How to Lease a Car- and How It Works

Finance is a hairy thing, especially with cars. Moreover, financial literacy as it applies to cars is extremely important. With the average price of new cars ever-rising, many are left with no other options to finance a vehicle, be it through loans or leasing one. Now, it’s time to examine what exactly a lease is, how to get one, and if you should.

Lease interest rates

A Land Rover dealership interior, with a Defender front and center
A Land Rover dealership | Gerald Matzka via Getty Images

Financing of this type can be broken down into several components. First, many will want to know what exactly the term means. According to Experian, it is very similar to a long-term rental. So, in exchange for an upfront payment, a dealership will give you a shiny new car to drive around in for a set amount of time, usually a number of months.

The dealer will make money on this transaction not only through the down payment but via interest. This is arguably the most important part of the lease terms. Interest, in this case, is basically a set percentage fee that the dealer takes in exchange for use of the car. Ideally, good credit and other qualifiers can help to keep that interest rate low, getting you the best deal.

Can it help you avoid depreciation?

Dealerships like this Ford one, with cars parked out front, often offer lease deals
A Ford dealership like this one likely offers leases on their cars | Smith Collection | Getty Images

Depreciation is taboo in the car industry. It’s almost inevitable, however. That’s one of the primary benefits of a lease. By only “loaning” out a car through the dealership, you aren’t forced to sell the vehicle when you’re done with it, circumventing depreciation. However, that’s not the only way to save money on a lease.

In general terms, a lease on a car is much, much shorter than a loan. This can be a great way to get around the spike in the auto market right now. Odds are, 36 months from now this will have all blown over (or aged like milk). Sitting in that new car could save you a premium on purchasing or taking a loan on another. Finally, this method of financing nets you all the nice new tech and features of a newer car with lower monthly payments.

When is it smart to lease?

Cars move down a highway in California
How many of these cars are on a lease? | Paul Morris via Getty Images

So, having touched on this above, we know that a short-term lease can be a solid stopgap for the current auto market. But that’s not the only time it’s smart to get into one. it is generally inadvisable to purchase the first model year of a new car. Maybe you bought into that Supra hype and got burned a year later when the new model got more power. Or bought a Telluride before Kia updated the badging. If you leased either, simply get the new one when the lease is up, and avoid those new car woes.

It’s much harder to do this with a vehicle you own or have a loan on, so a good lease deal will afford you some flexibility in your automotive proclivities. No matter your reasoning for leasing, it’s always important to shop around. Force dealers to be competitive with interest rates and you’ll be rewarded and get to enjoy a shiny new piece of metal.

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