How Does Vehicle Leasing Work?


Quick Answer

Vehicle leasing gives lessees the exclusive use of an automobile for a certain period of time in return for fixed monthly payments, explains Edmunds. The size of these monthly payments typically varies by vehicle model and make, the prospective lessee's credit score and the length of the lease, states LeaseGuide.com.

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Full Answer

The size of monthly payments for a lease is mainly determined from the depreciation rate of a vehicle, according to LeaseGuide.com. The depreciation rate is the difference in vehicle value between the start and end of a lease. If the difference is small, monthly payments are typically low; a large difference generally leads to bigger monthly payments. For this reason, luxury brands and vehicle models with higher resale values tend to have lower monthly payments.

Several factors should be considered before getting into a lease, warns LeaseGuide.com. Prospective lessees should check their credit scores before attempting to lease a vehicle; poor scores typically result in higher financing costs. Problems with a credit score should be resolved prior to any attempts at vehicle leasing.

In addition, leases longer than three years should be avoided, advises LeaseGuide.com. This is because the general cover offered by the vast majority of manufacturers on new vehicles expires after three years. Without the cover, lessees may end up with hefty repair bills if the vehicle is damaged. However, this recommendation does not apply to vehicles with very long warranties, such as those from Hyundai.

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