Lease

Meaning and Definition

In car finance, a lease refers to a contractual agreement between the lessee (individual or business) and the lessor (leasing company) for the use of a vehicle over a specified period. Unlike traditional car finance agreements where the borrower aims to own the vehicle, a lease allows the lessee to use the vehicle for an agreed-upon time while making regular lease payments. At the end of the lease term, the lessee returns the vehicle to the lessor, subject to any excess mileage or damages beyond fair wear and tear.

Why it is important to know

Understanding the concept of a lease is important for individuals or businesses considering car finance options. Leasing provides flexibility, lower monthly payments compared to purchasing, and the opportunity to drive a new vehicle without the commitment of ownership. It's important to carefully review the terms and conditions of the lease, including mileage restrictions, excess wear and tear charges, and the potential costs associated with early termination or lease extensions.

Example in car finance

Suppose a person decides to lease a car instead of purchasing it. They enter into a lease agreement with a leasing company, specifying the lease term, monthly payments, and any additional terms and conditions. They enjoy the use of the vehicle for the agreed-upon period, typically two to four years, while making regular lease payments. At the end of the lease, they return the vehicle to the lessor and have the option to lease a new vehicle or explore other car finance options. Leasing allows them to drive a newer car without the long-term commitment of ownership.