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Vehicle leasing is the leasing or use of a motor vehicle for a fixed amount of time at an arranged price for the lease. It is usually offered by dealers as a substitute for vehicle purchasing, although it is broadly used by businesses as a type of way to acquire or have the use of vehicles for business without any needed cash outlay. The main difference in having a lease, is that once the primary term is up the vehicle then has to be returned to the leasing company for disposal.
Vehicle leasing also offers advantages to both the buyers and sellers. For the buyers, lease payments tend to be lower than the payments on car loans and have a easier qualifications. Any sale tax is only down too one payment a month, instead of it being a whole purchase at once. Some consumers may prefer leasing as it allows them to simply and easily return the car and still be able to select a new type of car once the lease has expired. This allows for the consumers to be able to continuously buy new cars every few years or any repair costs after its expiry of the manufacturer’s warranty. An occupant doesn’t have to worry about future values of the vehicle, whereas a vehicle owner would have to. For a business occupant, there a many tax advantages that have to be considered.
For a seller, leasing can raise an income from a vehicle that the seller owns and can lease it again or can also sell via vehicle remarketing once the original lease has expired. As consumers tend to use a leased vehicle for shorter periods of time instead of one that they buy outright, leasing can raise repeat customers more quickly which may fit into several aspects of a dealer’s business model.
Lease agreements tend to specify an early termination fee and also limit the amount of miles a lessee can drive, for instance with most passenger cars a usual estimate of 10,000 miles per annum can be driven, but can be changed by the customer so that they have more mileage. If these mileage agreements are exceeded, an additional allowance may apply. Dealers occasionally allow a lessee to negotiate a slightly higher mileage at a higher lease fee. Lease agreements also specify how much wear on the vehicle can be made and if this is exceeded by the lessee then another additional fee will have to be made. A lease maintenance, which in the UK is most commonly known as Contract Hire, can consist of all vehicle running costs exclusive of fuel and insurance costs.
The actual lease payment is calculated in a similar way to how loan payments are made, but instead of the APR, a company would use something known as money factor, which essentially describes the interest rate of the whole year instead of per month. By the end of the lease, the lessee must either return the vehicle borrowed or buy the vehicle from the owner itself. the end of the leases payments is usually agreed towards the signing of the lease.
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