What is Car Leasing and why do you need it?

Car leasing is the rental of a car for a definite period, usually between two and five years. When leasing – you are not the owner, but pay a monthly rate to ensure you utilize the vehicle. In the end, you can return, buy or continue to lease the car. The monthly costs, known as leasing rates, are usually lower than credit rates. However, it is often not wholly as easy as it sounds. The cheap dream car can develop into a cost trap.

How Does Car Leasing Work?

If you lease a car, you pay a monthly fixed rate for the agreed period of the lease. A leasing contract is available from a term of 1 year; the most common variant has a span of 3 years. During this duration, there isn’t a possibility to abort the contract. This means that if you can’t render the monthly installments, for example, due to unemployment, you will not get out of the deal.

Car Leasing in Comparison – the Thick End Usually Comes to a Close

These car lease specials sound so good: For a few hundred dollars a month, your dream car with the desired equipment is at your door. What many don’t realize, however, are the hidden overheads and clauses in the various contract variants that make leasing expensive than a classic car loan at the end. You should pay particular attention to these aspects of the contract:

• The kilometer clause or kilometer leasing
• The residual value clause or residual value leasing

Kilometer Leasing: How the Kilometer Clause can become a Cost Trap

A common variant of the lease is the kilometer clause, also called mileage leasing. Here you agree on contract conclusion, a maximum sum of kilometers, which you may cover during the term. If you do less, they will be financially compensated by the lessor. Many leasing companies have a certain number of free multi-mile kilometers, often between 2,500 and 3,000 km. If you exceed these, however, you will have to pay a mileage rate. That’s a midsize car between 10 and 15 cents per kilometer driven.

Residual Lease: Conflict Between Dealer and Customer is Not Rare

For residual value leasing, the contract specifies how much the vehicle should be worth at the end of its term. It is conclusive if the scratches in the paint and stains on the covers nor the traditional wear and tear, or if there is excessive use. Often it comes to a dispute between dealers and customers. In this case, an independent assessor must decide how much the car is worth.