Car Leasing: How Does it Work?

August 31st, 2022 by

It’s a constant debate when it comes time to score a new car: to buy or to lease? How does leasing a vehicle work, anyhow? There’s no real one-size-fits-all answer here, but let’s look at a few folks who have leased a car—and whether or not they regret their decision. 

Pro: You’re Looking for a Cheaper Monthly Payment 

“I was able to lease a brand-new Nissan Sentra for a fraction of the monthly payment than if I got an auto loan.” – Teddy G. 

People always wonder, “How much does it cost to lease a car?”

By far one of the biggest advantages of leasing a vehicle is the opportunity to pay less money in the short term. This is due to a number of factors—basically, it’s helpful to think about buying as similar to having a mortgage on your home, whereas leasing is more like paying rent. 

Generally, the monthly payment for a lease is lower. Exactly how much lower depends on who you ask, but generally speaking, most experts agree that drivers spend between $100 and $150 less per month when they lease, on average. This has a lot to do with the basic question, “How does leasing a car work?” 

Basically, to calculate your lease payments, you would take the amount of money the car is expected to depreciate over the course of the lease, and divide that by the lease term. For example: 

  • $3,000 Expected Depreciation / 12-Month Lease Term = $250 Monthly Payment 

Seems pretty simple, right? 

Con: Front-End Fees of Leasing 

“I thought I was getting this 2-year-old Armada for a steal, but after all the extra costs, I ended up spending more, and I had nothing to show for it after my lease was up.” – Macy N. 

When it comes to the question of how to lease a car, the most important thing to remember is to do your due diligence as a consumer. Whether you’re leasing or buying, doing plenty of research beforehand is key. 

There are a few different types of “surprise” fees that folks can encounter, and this is usually due to poor communication between lessor and lessee. For instance, lessors will often require some sort of down payment, depending on your credit history, which can come as a surprise. Some states also require tax, title, and doc fees. 

Fees on the back end are usually due to the car being improperly maintained by the driver, but more on that in a minute…

Pro: Warranty Coverage and Minimum to no Maintenance Cost 

“When I leased my new Nissan from Jim Burke, not only were the monthly payments a lot lower, but I didn’t have to pay a dime to get my car serviced for the entire 36-month term!” – Donald S. 

Because most cars for lease are new, they come with full warranty coverage, often through the factory (which are often the best warranties available.) The biggest upshot here is that, for the entire course of your lease, your liability is at a minimum. In fact, if you lease from our Birmingham Nissan dealership, you can even get free complementary maintenance like oil changes for life! 

It should be noted, however, that you still need insurance to drive a leased vehicle. It should also be noted that, while the best warranty coverage is available, you may be in for back-end fees.

Con: Those Pesky Back-End Fees 

“I ended up going on a few road trips, and they put me over the maximum mileage on the lease. That was a shocker when I went to hand the car back in, for sure.” – Terri O. 

Back-end fees are pretty self-explanatory, really: they’re extra costs incurred when you go to turn the keys back in at the end of your lease’s term. These tacked-on fees are clearly explained before you ever drive off the lot, and yet every year, some folks are shocked when they owe a couple grand more than expected. It can happen in a number of ways. 

Like our friend Terri up there, if you exceed the agreed-upon mileage over the course of your lease, you’ll have to make up the depreciation value. The most important thing here is to be aware of your personal driving habits. Generally speaking, it’s widely accepted that the average driver puts about 12,000 to 15,000 miles on their car in a given year. If you have a long commute for work, or you travel often, it could be much higher, so you’d want to negotiate the proper mileage limit at the beginning of the lease. It’s always better to pay a little extra up front than have to pony up a lot more dough later on. 

Another way those back-end fees can get you is by simply not taking care of the car. Remember, you’re basically renting a vehicle for an extended period of time, and you’ll be expected to return it in decent condition. This involves avoiding “preventable” damage like exterior scrapes and dings, as well as keeping the interior reasonably clean. So, if you, say, have young kids who like to make a bit of a mess leasing may not be the best option—unless you’re in tight with a good detail guy, that is. 

Lastly, if you’re wondering how to get out of a car lease, the answer is: you usually can, but it’s gonna cost you. 

Is there a happy medium, though?

Pro: Potential Vehicle Buyout 

“I leased a new Pathfinder, and I liked it so much, I ended up buying it out after my lease was up. Because of how up and down the market’s been for the past few years, I actually ended up saving money in the long run!” – Tim L. 

If we’re sticking with the buying versus renting a house analogy, think of this as the rent-to-own option. 

The obvious benefit here is that you can potentially walk away with a relatively new car that you own, but you don’t have to fully commit to an auto loan right away. You can feel free to drive it for months or even years to get a feel if it’s truly a good fit. 

It can also actually end up being cheaper than if you’re bought the car outright in the first place. This is a complicated financial issue that depends on a lot of different market factors, but if you ask your local Birmingham leasing specialist, we can work with you to figure out what the absolute best economic decision is. 

Still, it should be noted that this still doesn’t come with the same benefits of actually buying a car.

Con: You’re Not Building Equity 

“I seriously considered leasing one of those new Kicks hatchbacks, but at the end of the day, I don’t want to feel like I’m renting a car.” – Fred J. 

While leasing a car does usually help build your credit, if the market conditions aren’t quite right, you could stand to end up paying more if you lease before buying. 

Again, it’s a complex issue with a lot of moving parts, and there’s no one right answer for everyone. Anyone who’s ever rented a house or apartment, only to realize years later that they really don’t have an asset to show for it, will understand the frustration it can cause. 

Once again, this is something to talk to your Birmingham lease expert about at length. For many of you, not owning the vehicle won’t be a deal breaker—especially when you consider our lease loyalty program, which can help you save on some of those potential back-end fees, or even waive them entirely. 

So, Should You Lease or Buy?

If you’re asking yourself why leasing a vehicle is a bad idea, hopefully this helps. Really, though, this is just scratching the surface. The issue is nuanced, and everyone will come to a different conclusion. Basically, we suggest leasing as an option if you: 

  • Don’t tend to put a lot of miles on a car. 
  • Are good at keeping vehicles clean. 
  • Like to drive newer cars, or regularly upgrade every couple of years. 
  • Are seeking a lower monthly payment for a newer car. 
  • Don’t mind not owning the vehicle. 
  • Want the best warranty option. 

This is by no means a comprehensive list—we have even more advantages and disadvantages of leasing a car on our website. Scroll through, or give our car dealership near Hoover a call at (205) 390-7564 if you want to speak to someone about applying to lease a Nissan in Birmingham today. 

Posted in Car Buying Tips