People often prefer leasing cars than outright purchase of it.The main reason is that leasing saves the customer from the need to pay in full the cost price of the vehicle and instead,monthly rentals are paid after an amount as an initial deposit.Leasing is just similar to renting a product.Those with lower income can afford to have new model cars buy leasing them out.

In leasing the legal title is not passed to the customer and so the leasing company wants the customer to keep its product in a reasonable condition.However,at the end of lease term it is up to the customer whether to hand back the product or have the legal ownership shift in his name.

Leasing also saves the customer from the worries of negative equity,that in simple words is,to fall in value so that the fair value is less than the recoverable amount.If the lease is canceled before the rightful period it is considered as breach of contract and may be penalized.In some cases there is just an early termination fees.

In case of car leasing,there are two options available to the customer:

Closed end lease:

In this the value of the vehicle that would be at the end of lease term is determined at the inception of lease and if after the lease term the customer intends to buy it,he will have to pay the predetermined amount along with the administrative charges.

Open end lease:

The amount of the leased vehicle is determined at the start and also at end and when the lease agreement ends,the difference between this amount and the actual fair value is paid to the lesser.This method is not much appreciated as the difference in both amounts can turn out to be unreasonable.

As it is a type of investment on lessor’s part,leasing companies seek people with good credit ratings so that the monthly payments owed to them are not missed.There are other conditions too,like mileage limitations and a fee based on per mile basis may also be charged.

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