Car leasing is like long-term car rental, consisting of an initial payment and a series of fixed monthly payments over a set period of time. You don't formally pay interest - as you're effectively renting the car rather than financing it - and when the contract comes to an end, you hand the car back with nothing more to pay. Provided, that is, there's no damage beyond fair wear and tear and you've stuck to the pre-agreed mileage limit.

Leasing is one of the simplest ways of driving a new car and can be one of the most cost-effective, enabling you to get a new car every few years. As long as you don’t want to own your vehicle at the end of the agreement, this can be an affordable way to put a string of new cars on your driveway. Just remember that you have to hand the car back at the end of the contract; there's no chance to buy it like with Personal Contract Purchase (PCP) plans.

The Advantages of Leasing A Car

Lower Monthly Payments

Leasing a car usually results in monthly payments that are 30% - 60% lower versus buying a car. This allows you to drive a car that you may not normally be able to afford, and this is perhaps the biggest advantage that leasing offers.

Tax Benefits With Car Leasing

When leasing a car, in many cases you will not have to worry about road tax and ensuring that you are up-to-date on payments, as it can be covered in the agreement for the duration of the lease period. That's added peace of mind.

You Get a New Car Every Few Years

Is your current vehicle not everything you dreamed it would be? Found out there’s a new model coming out soon? Fear not, with a lease, you get to renew your car every few years. At the end of your lease contract, you hand the car back, and simply get a new one. You can arrange it so your lease car goes back at the same time as your brand new car is delivered. This is appealing to those who like to have the latest car with the latest technology and the latest safety equipment, but don’t want to have to go through the re-selling and the buying process all over again.

Leasing a car eliminates problems with a warranty.

When you purchase a new car, it can lose a significant amount of its value the moment that you drive it off of the lot. If you get into an accident or have it break down before you get through the first year, then you could be stuck with a huge repair bill – assuming that you can even get it operational again. Purchasing an extended warranty isn’t cheap for many families either, with the cost sometimes as much as 10% of the listed price of the vehicle.

The Disadvantages of Leasing a Car

You must prove that you have a stable income source to lease a car.

Dealerships will not approve an offer to lease a car if you’re unable to prove that you have income, employment, or sometimes both. Having a regular paycheck doesn’t always meet this obligation. This issue can be problematic for contractors, self-employed individuals, and people who work seasonally.

The dealership might still require a significant down payment.

You need to have a significant amount of money available as a down payment if you want to lease a vehicle. The cost is usually lower than the 20% recommended when buying the car, but it can still be a significant number. It is not unusual to have $4,000 or more required out-of-pocket to take the vehicle home. This cost covers the licensing fees, initial payment, and miscellaneous costs as outlined by the agreement.

Limited Mileage

Most leases have driving limits of between 10,000 and 15,000 miles per year. Anything over this amount will be penalized at a very high rate.

You can’t customise your car

When you lease your car, you don’t own it, so it’s not yours to change. If you want to add a sound system, add personalised decals or change the colour or modify it in any way, you should think about buying your car instead of leasing it. The general rule is that you can modify your car, but when you hand it back you will have to reverse those modifications. Otherwise, you will face a fine. So really, there’s not much point in modifying your car if you are going to have to change it back in a few years anyway. Therefore, if you’re a bit of a car nut and want to improve your car and add all sorts of things to it then we would say that leasing isn’t right for you.