How Do Car Leases Work - Car Leasing Explained
A car lease allows you to drive a vehicle from a dealership for an agreed upon amount of time and miles, and pay for its usage rather than for the full purchase price of the vehicle.
You make monthly payments to be able to drive the car. The monthly payments are based on the car’s projected depreciation value over the course of lease term.
A car lease from Proctor Honda ranges from 2 - 5 years in length, and is measured in months (ex: 3 years would be a 36 month lease).
Shorter term leases (less than 2 years) may be available through subleasing websites, but are not available through the dealership. The most common terms for a car lease are 2-3 years. A major benefit to 2-3 year leases is that the vehicle warranty is normally for 36k miles or 3 years, meaning that there is little risk for out-of-pocket repair during the lease.
At the end of the lease, you will return your vehicle to the dealership where it will be inspected. The dealership will make sure that the lease did not exceed its mileage limit and that there is not excessive wear and tear to the vehicle.
Many people get nervous that they will be charged for every scratch or ding on the vehicle, but keep in mind that the dealership is expecting your car to have 3 years’ worth of wear and tear from normal use over the course of a 36- month lease.
Depending on the type of lease, there are three options when the lease is over:
***When you return your lease to the dealership, don’t forget to also bring in any extra keys and floor mats that came with the vehicle.
At the end of the lease, you will be charged a disposition fee (flat rate agreed upon at beginning of lease that dealers use to prepare the vehicle for resale). In addition to the disposition fee, you will settle up for any additional charges for mileage overages or excessive wear/tear.
Since car lease monthly payments are based upon projected depreciation over the lease term, the lease will specify a mileage limit for the vehicle.
It is important to know approximately how many miles you drive per year before entering into a car lease, because you will be charged for every mile that you drive beyond your agreed upon mileage limit.
Fortunately, Honda’s rates for exceeding miles do not exceed $0.20 PER MILE.
Most car leases allow from 10,000-15,000 miles on the vehicle per year. Higher mileage leases are available (ranging up to 30,000 miles per year), but cost more. Miles cannot be added or bought in the middle of a lease.
The average credit score for people leasing cars is 745. A good credit score is required to lease a car, and generally dealerships like to see a score of 650 or higher.
One of the biggest draws to leasing a vehicle is that the monthly payments are typically lower than monthly auto loan payments.
Leasing allows you to always enjoy the benefits of driving a new vehicle, since you can trade up to the most current model at the end of every lease term, and keep driving with the newest technology and safety features.
It is also a great option for people who don’t want the hassle of car ownership. Since leased new cars are almost always under factory warranty, there are few out-of-pocket repairs and maintenance costs, and you can walk away from the car at the end of the lease without having to spend time and energy trying to resell it.
What is residual value, and why is it a benefit to leasing?
At the beginning of your lease, the leasing company will determine the residual value of the car (an estimate of how much your car will be worth at end of the lease). Another added benefit to leasing is that by calculating the residual value at the beginning of your lease, the lease company (NOT YOU) will assume the risk for market factors outside your control (i.e., collsions, CarFax hits, high gas prices lowering vehicle values, vehicle becomes undesirable, vehicle recalls, etc.) If the vehicle is worth less than the expected residual value at the end of a lease, the lease company takes the loss, not the customer.
In addition to the key differences above, learn more about the differences in buying or leasing a vehicle here.
Yes. As long as your window tint is compliant with state laws, you are able to tint the windows on your lease.
Factory accessories are also allowed on any leased vehicle.
After-market / third-party accessories are not permitted on your lease.
Collision and comprehensive coverage is required on every leased vehicle. In addition to this, it is recommended that people who lease a vehicle consider gap insurance.
What is GAP insurance?
GAP stands for Guaranteed Asset Protection. GAP insurance exists to protect the driver of the leased vehicle from paying out of pocket in the event that their leased vehicle is stolen or totalled.
The great news for people who choose to lease from Honda, is that GAP insurance is included as a part of the lease.
GAP insurance works alongside collison and comprehensive coverage insurance. Since vehicles depreciate most in the first year or two, there is a chance that if your leased vehicle is totalled, you may still owe more on the car than its true depreciated value at the time of the collision. GAP insurance will prevent the driver from having to pay out-of-pocket for the difference in what they owe and the depreciated value.
If the vehicle is totalled, your lease will end before its term.
If your leased vehicle sustains repairable / minor damage during an accident, simply let your insurance cover the repairs, have the repairs completed, and turn in your leased vehicle when the lease term is over. Even if your car’s true value is less than the residual value (the amount of depreciation calculated at the beginning of your lease), you will not owe money for the difference.
Yes, however, the vehicle must be returned to the same dealership you leased it from.
If you move out of state, you will need to update the lease company of your move immediately.If you move out of state, you will need to update the lease company of your move immediately.
Vehicles must be returned to the dealership at the end of the lease. So, what happens if you relocate across state lines prior to the end of your lease term? If your vehicle is leased using the captive finance company, such as Honda Financial Services, it can be returned to any authorized Honda Dealership in the United States! To verify that you are eligible for nationwide returns, contact your leasing company prior to your move and update them with your new address when available.
You need to be licensed and registered in the state where you are a resident. Also, your sales tax rate may be different between states, so your monthly payments may change slightly. Some states (Georgia) require taxes on vehicles to be paid upfront, annually.
Yes! Bypass the showroom & save time by designing your deal online. Get pre-approved online and customize your lease on a new Honda.
- Car Shopping Basics
- Buying vs leasing
- How is my trade valued?
- Auto Finance Glossary
- Auto Buying FAQ’s
- FICO credit scores & car buying
- Extended warranties & service contracts
- Auto Leasing FAQ’s
- Car Leasing Explained