How do vehicle leases work

The average credit score for people leasing cars is A good credit score is required to lease a car, and generally dealerships like to see a score of or higher. One of the biggest draws to leasing a vehicle is that the monthly payments are typically lower than monthly auto loan payments.

Leasing allows you to always enjoy the benefits of driving a new vehicle , since you can trade up to the most current model at the end of every lease term, and keep driving with the newest technology and safety features.

Since leased new cars are almost always under factory warranty , there are few out-of-pocket repairs and maintenance costs, and you can walk away from the car at the end of the lease without having to spend time and energy trying to resell it.

At the beginning of your lease, the leasing company will determine the residual value of the car an estimate of how much your car will be worth at end of the lease. Another added benefit to leasing is that by calculating the residual value at the beginning of your lease, the lease company NOT YOU will assume the risk for market factors outside your control i. If the vehicle is worth less than the expected residual value at the end of a lease, the lease company takes the loss, not the customer.

In addition to the key differences above, learn more about the differences in buying or leasing a vehicle here.

As long as your window tint is compliant with state laws, you are able to tint the windows on your lease. Collision and comprehensive coverage is required on every leased vehicle. In addition to this, it is recommended that people who lease a vehicle consider gap insurance.

GAP insurance exists to protect the driver of the leased vehicle from paying out of pocket in the event that their leased vehicle is stolen or totalled. The great news for people who choose to lease from Honda, is that GAP insurance is included as a part of the lease. Select personalised content. Create a personalised content profile.

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She has been an investor, entrepreneur, and advisor for more than 25 years. Learn about our Financial Review Board. Article Sources. The Selling Price of the vehicle comes from the usual negotiations you have with a dealership when buying a car to determine how much you would buy it for.

They usually involve the following:. All of these help determine the final Selling Price of the vehicle, before tax is included. It is generally used as the foundation for the other factors below. The Residual Value and the Depreciation of the vehicle are closely tied together. Both are determined by the leasing company before you sign the lease using historical data for that make and model as well as future projections.

The Residual Value represents how much the car is worth at the end of the lease, and the Depreciation represents how much value the vehicle lost by the time the lease ends. Here is basic rundown of how they work to determine your lease payments:. It is important to keep in mind that the Residual Value and Depreciation are determined before you actually lease the vehicle, not after the lease is over. They are both set using historical data of previous versions of the same model as well as forecasting future trends.

Other factors that are considered include reliability, the cost and frequency of repairs and parts, fuel economy, size, condition, mileage, consumer trends in desirability, and so on. Some leasing companies will ask for you to make down payment towards the lease that will also lower your lease payments. Open Today! Tennessee St. Tallahassee , FL How Do Vehicle Leases Work? Auto Leasing Defined. Settle up with the dealership. Leave without a new car. Start New Lease Return your vehicle and sign a new lease on a different car at the same dealership.

Leave with a new car. If the leased vehicle is totalled, the lease will terminate before its term. Car Shopping Basics Buying vs leasing How is my trade valued? Proctor Acura. Use for comparison purposes. For additional information on the 5-Star Safety Ratings program, please visit www. It cannot correct the vehicle's course in every situation or compensate for reckless driving.