So, not everyone has enough money to buy a car. Sure, the car payments might be similar to your leasing payments, but what about that monster down payment? You might not have the money for that right now. Maybe you just need to get yourself to work, until you can afford to buy a car. Leasing offer lower down payments and lower monthly payments because you aren’t making that lifer commitment.

Or maybe, you are the kind of driver that wants to keep your car in that adorable, puppy stage. It’s all shiny and cute with those big ol’ headlights staring up at you. It’s understandable that you just want to hold on to those days. If this scenario warms your heart, leasing could be for you.

How It Works

Leasing is essentially borrowing a car for a certain period of time, usually at least two years. The money you pay to your leaser, the person (a bank, car dealership, friend, etc.) who is lending you the car, is based off the difference between how much the car was worth when you got it and how much it will be worth when you return it. So, you start with a down payment, money you give the leaser up front. Sometimes, you might not even have to give a down payment, but a down payment can lower your monthly payments.

Then you can break however much you have of the difference left into monthly payments, plus the interest. For all of this, you are given a car, but you are only allowed to drive between 12,000 and 15,000 miles per year.

EXAMPLE!

You get a sweet little ride that you are going to lease, and the price of the car is $17,000. The dealer guesses that it will be worth $10,000 when you return it, but you say, “Oh nonono! It will definitely be worth at least $11,000.” So, your car dealer agrees, grumbling about financialfootprint, and asks what kind of down payment you want to put up. You say $500, and he agrees. So, your car payments over the term of your lease term will be $5,500 plus interest. Your payments will be that total amount divided up into the number of months in your lease. You pay for the difference between the price when you drove it off the parking lot and the estimated price when you return it.  Basically, a car that depreciates faster will cost more to lease, so consider one that will hold value over time.  Connect with your personal finance guide for all the juicy details.