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Vehicle leasing is the leasing or the use of a motor vehicle for a fixed period of time at an agreed amount of money for the lease. It is commonly offered by dealers as an alternative to vehicle purchase but is widely used by businesses as a method of acquiring or having the use of vehicles for business, without the usually needed cash outlay.
The key difference in a lease is that after the primary term usually 2, 3 or 4 years the vehicle has to either be returned to the leasing company or purchased for the residual value. Vehicle leasing offers advantages to both buyers and sellers. For the buyer, lease payments will usually be lower than payments on a car loan would be. Any sales tax is due only on each monthly payment, rather than immediately on the entire purchase price as in the case of a loan.
Some consumers may prefer leasing as it allows them to simply return a car and select a new model when the lease expires, allowing a consumer to drive a new vehicle every few years without the responsibility of selling the old vehicle, or possible repair costs after expiry of the manufacturer's warranty. A lessee does not have to worry about the future value of the vehicle, while a vehicle owner does.
For a business lessor there are tax advantages to be considered. For the seller, leasing generates income from a vehicle the seller or manufacturing corporation still owns and will be able to lease again or sell through vehicle remarketing once the original or primary lease has expired. As consumers will typically use a leased vehicle for a shorter period of time than one they buy outright, leasing may generate repeat customers more quickly, which may fit into various aspects of a dealer's business model.
Leasing's average retail market penetration rate in the United States for new passenger vehicles reached an all-time record high of As of , leasing accounted for about 25 percent of total vehicle sales or 31 percent retail sales in the United States. The prevalence of leasing in the United States for GM , Ford and Chrysler have been rising close to the industry norm since reaching low single digits in , but still lower than BMW and Mercedes-Benz.
Leasing is the second-most popular form of consumer new car finance in the UK after personal contract purchase. The overall value of the personal leasing market grew by Lease agreements typically stipulate an early termination fee and limit the number of miles a lessee can drive for passenger cars, a common number is 10, miles per annum though the amount can be stipulated by the customer and can be 12, to 15, miles per year.
If the mileage allowance is exceeded, fees may apply. Dealers will typically allow a lessee to negotiate a higher mileage allowance, for a higher lease payment. Lease agreements usually specify how much wear on the vehicle is allowable, and the lessee may face a fee if that amount of wear has been exceeded.
The actual lease payments are calculated in a very similar way to loan payments, but instead of an APR, the company uses something called the money factor. At the end of a lease's term, the lessee must either return the vehicle to or buy it from the owner.
The end of lease price is usually agreed upon when the lease is signed. Typically a leasing company will have a minimum length of lease such as 24 months up-to 60 months. Recently a new view on leasing is that the market has grown for short term lease called 'flexi-lease'.
This is almost the same as van hire but typically involves the finance or leasing company maintaining and being ultimately responsible for the vehicle. From Wikipedia, the free encyclopedia. This article relies largely or entirely on a single source. Relevant discussion may be found on the talk page. Please help improve this article by introducing citations to additional sources. Power , McGraw Hill Financial. Retrieved 24 April Retrieved from " https: Contract law Business law Leasing Vehicle rental.