How Do Car Leasing Companies Work
Posted by nidan narkhade on May 17th, 2019
If you are looking to lease a car, or perhaps buying a car, it is highly likely that you have come across some of the best car leasing companies. With the growing popularity of leasing in recent times, leasing companies have also cropped up significantly, with a lot of options to choose from. Nevertheless, many car leasing companies in Mumbai as well as in other cities still do not know what they are, how they work, and what makes them different from dealerships.
Car leasing companies are essentially in the market to be independent, or at least more independent than others. Generally speaking, their target is to find the best offer for you. They do this by having the best buying power to purchase vehicles, and to work in collaboration with finance houses to develop a package together and come up with appealing monthly rentals with the aim of attracting customers. Their work is similar to that of a mortgage broker, but with vehicles.
Unlike a traditional car loan, leasing is a type of financing in wherein you have to pay for the use of a vehicle instead of its purchase. The use of a vehicle includes its depreciation cost, any excessive mileage, and any excessive wear and tear that is caused during your lease.
As with traditional financing, you will have to shell out a finance charge (interest rate) on the purchase price of the vehicle. Contrary to a popular misconception, the vehicle is actually purchased by a leasing company before they turn around and lease it to you. To a dealer, a lease is the same thing as a regular sale.
One can think of a leasing company as a finance company, since they do the same thing. In fact, many car leasing companies in India are simply banks that deal in car financing as well as leasing. When you avail a car loan to buy a vehicle, a part of your monthly payment goes in paying off that vehicle while another portion pays the finance charge. Basically, as far as a lease is concerned, your payment goes towards the use of the vehicle plus the finance charge. You never pay off any principal.
On a other hand, when it comes to a car loan, a considerable portion of your monthly payment goes in paying off the principal, so the amount you owe to the bank with the passing of time keeps lessening constantly. This reduces your finance charge.
A major advantage of leasing is that you simply return the car to the leasing company and walk away to the end of your term, while they will have to deal with the hassle of selling the vehicle.
