What Does it Mean to Lease a Car?

Leasing began as a way for corporations to track transportation costs while saving money over purchasing a vehicle outright. Now, almost any vehicle can be leased, offering buyers from all walks of life access to high-quality vehicles with low monthly lease payments that make fitting it into the monthly budget easier.

How Does Leasing Work?

When purchasing a new vehicle, your monthly payment is based on the total value of the car, plus any additional fees, such as taxes, title, and licensing. Unlike buying, however, a lease is based on the vehicle’s depreciation, divided over the term of the lease.

Let’s look at an example of how a lease is calculated:

  • Initial Value: When purchasing a vehicle, the initial value is the total purchase price of the car. In this scenario, we’ll assume the value of your vehicle is $30,000.
  • Lease Term: Leases can be as short as a few months and as long as a few years. We’ll assume a term of 36 months for this example.
  • Depreciated Value: This is your vehicle’s value at the end of the lease term. For this scenario, we’ll assume the vehicle is worth $20,000 at the end of the lease term.
  • Lease Value: Based on the above scenario, the depreciation on the vehicle is $10,000 — that’s the amount the vehicle has lost over the course of the lease and the amount your lease payment will be based on.

Because you’re only financing $10,000 plus interest and fees, rather than $30,000 plus interest and fees, your monthly lease payment could be significantly lower than a purchase payment for the same vehicle.

Leasing vs. Buying

“Which is better, leasing or buying,” is the age-old question asked by car shoppers. There’s no right or wrong answer; it depends on you. For some shoppers, buying is the only way to go. But for others, the benefits of leasing are considerable:

  • Short-Term Commitment
  • Lower Payment
  • No Trade-In Hassle
  • Upgrade More Frequently
  • More Vehicle for the Money

For drivers who have short daily drives or like to trade-up frequently, leasing can be a very appealing option.

Get More Advice from Public Service Credit Union!

Does leasing a car sound like a viable option for you? Learn more about the benefits of joining a credit union from Public Service Credit Union, and how you’ll enjoy higher savings rates, lower fees, and more. Contact us to speak to a representative, and we’ll help you decide whether leasing or buying your next car makes more sense.

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