Vehicle leasing
Encyclopedia
Vehicle leasing is the leasing
Leasing
Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments....

 (or the use of) a motor vehicle
Motor vehicle
A motor vehicle or road vehicle is a self-propelled wheeled vehicle that does not operate on rails, such as trains or trolleys. The vehicle propulsion is provided by an engine or motor, usually by an internal combustion engine, or an electric motor, or some combination of the two, such as hybrid...

 for a fixed period of time. It is commonly offered by dealers as an alternative to vehicle purchase but is widely used by businesses as a highly cost-effective 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 be returned to the leasing company for disposal.

Rationale

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, and qualification is often easier. 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. A lessee does not have to worry about the future value of the vehicle, while a vehicle owner does.

For the lessor, leasing generates income from a vehicle the lessor still owns and will be able to lease again or sell through vehicle remarketing
Vehicle remarketing
Vehicle remarketing is the controlled disposal of fleet and leasing vehicles that have reached the end of their fixed lease term.In vehicle leasing, after the lease expires, the lessee either returns the vehicle to the supplier or buys it...

 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.

Lease agreement

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 10,000 miles per annum though the amount can be stipulated by the customer and can be 12,000 to 15,000 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. A lease with maintenance (commonly known in the UK as Contract Hire) can include all vehicle running costs excluding fuel and insurance.

The actual lease payments are calculated very similarly to the way loan payments are, 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.

See also

  • Hire Purchase
    Hire purchase
    Hire purchase is the legal term for a contract, in this persons usually agree to pay for goods in parts or a percentage at a time. It was developed in the United Kingdom and can now be found in China, Japan, Malaysia, India, South Africa, Australia, Jamaica and New Zealand. It is also called...

  • Closed-end leasing
    Closed-end leasing
    Closed-end leasing is a contract-based system governed by law in the U.S. and Canada. It allows a person the use of property for a fixed term, and the right to buy that property for the agreed residual value when the term expires....

  • Installment plan
  • Leasing
    Leasing
    Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments....

  • Business Contract Hire
    Business Contract Hire
    Business Contract hire is a term used in the UK to describe a vehicle operating lease used by a business. Contracts range from 12–60 months and are tailored to the businesses requirements....

  • Chattel mortgage
    Chattel mortgage
    Chattel mortgage, sometimes abbreviated CM, is the legal term for a type of loan contract used in some states with legal systems derived from English law....

  • Novated lease
    Novated lease
    A novated lease is a type of motor vehicle lease common in Australia that allows a business to lease a motor vehicle on behalf of an employee, with the responsibility for the lease lying with the employee and the lease payments being made from the employee's pre-tax income.The term novated lease is...

  • Cross-border leasing
    Cross-border leasing
    Cross-border leasing is a leasing arrangement where lessor and lessee are situated in different countries. This presents significant additional issues related to tax avoidance and tax shelters....

  • Personal Contract Purchase
    Personal Contract Purchase
    A personal contract purchase is a form of vehicle finance for individual purchasers which has similarities to both personal contract hire and hire purchase...

  • Vehicle Lease Transfer
The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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