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Car and Vehicle leasing is the leasing of the use of a motor vehicle for a fixed or indefinite period of time. It is commonly offered by dealers as an alternative to car or vehicle purchase. The key difference in a lease is that after the lease expires, the lessee must return the car or vehicle to the dealer or buy it.
Car 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 usually 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 vehicles. A lessee does not have to worry about the future value of the car or vehicle, while a vehicle owner does.
For the leasor, leasing generates income from a vehicle the leasor still owns and will be able to sell or lease again once the original 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 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 to 15,000 miles per year of the lease). 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. Car 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 car 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 term, the leasee must either return the car or vehicle to the owner or purchase it. The end of lease price is usually agreed upon when the lease is signed.