Published on : 18 February 20203 min reading time

Many people choose to lease a vehicle rather than buy it. However, at the end of the lease, you must return it. Some leases offer the option to purchase the vehicle at the end of the lease period. This is called a car lease with a purchase or lease option.

What is leasing?

Car rental with purchase option commonly called leasing is similar to renting, in that you choose a vehicle for an agreed period of time (usually between two and five years), for a fixed fee. Your contract is tailor-made in terms of the estimated annual mileage, the length of the contract and the method of payment. The total cost of your lease is calculated based on several factors: the initial value of the car, its estimated value at the end of the contract (the residual value), your annual mileage allowance and the term of the contract. At the end of the term, you have the choice of returning the car or buying it at its residual value.

How does it work?

You make a deposit, more commonly known as an initial contribution. This is usually equivalent to a few monthly payments. Then come fixed monthly payments that continue until the end of the contract. In general, the longer the period, the lower the monthly payments. At the end of the lease, the vehicle is simply returned, checked and your payments stop, allowing you to lease another car. If you exceed the agreed mileage, you will have to pay a certain amount as compensation. However, if you wish to exercise the option to purchase the car, you will have to pay the equivalent of the residual value of the car as stated in the lease contract.

Advantages and disadvantages

Drivers who prefer to rent do so for two main reasons. First, they drive a recent vehicle that remains under warranty during the rental. Second, the monthly costs invested in a lease are normally lower than those of a purchase. This allows them to lease a vehicle that is more enjoyable and more expensive than one they could afford to buy. Leases also have disadvantages. Over the course of a lease’s life, the lessee will likely spend more on a vehicle than a buyer. Another disadvantage is that at the end of the lease period, he has to return the vehicle and walk away without any equity in the vehicle that could be used.