Auto leasing was popularized by car companies to improve sales, especially in the luxury car segment. Today, 4 out of 10 cars in the country are leased. When leasing a car, the car company owns the title of the car and you are given specific limits and rights on how to use it, how much to use, terms of maintenance, and specifications about the condition in which the car should be maintained and returned.

When you lease a car, you pay for the difference between the vehicle’s price and its expected value at the end of the lease period, along with interest and fees. Initially, you are required to make a down payment on the lease. The down payment, which is also called a capital reduction, is an upfront payment of a portion of the lease. For the balance amount of the lease, you will be making payments every month. The length of the payment depends on the period of the car lease. The payments are generally lower than what it would be if you are purchasing a car, as you’re only financing the value of the car, for your period of the lease.

To quote an example, let us say you have found your dream car at $35,000. Its expected worth after three years is calculated at $25,000. If you lease the car for 3 years, you pay for the $10,000 which is the expected depreciation, plus interest and other fees. If you bought the car you would be paying interest and principal on the full amount of $35,000. Once the lease is over you return the vehicle to the car dealer. You also have the option of repurchasing the car once the lease is over.

Certain conditions are put forth by the dealer while leasing the car. One of these is a limitation on the mileage of the car. The lease will have a specified mileage which you can run the car for every year. If the annual usage exceeds the miles permitted, you will have to pay a per-mile charge for exceeding the limit agreed upon at the time of the lease. You can negotiate to add miles or negotiate the additional per-mile charges at the time of signing the lease document to save additional costs in case of excess mileage.

Typically a lease runs for 2-4 years, though some can be for longer periods. Leasing a car for longer than 4 years, particularly if you travel long distances, could boost costs by way of maintenance. If you choose to lease a car, ensure that the lease period matches or is shorter in duration than the car’s warranty period.

Some car manufacturers have special leasing programs and promotional offers of new cars for lease. Compare with multiple dealers before making a decision. Invest some time in comparing offers before you commit and ensure you read the fine print before signing an agreement. A leasing contract, when broken or terminated earlier, comes with its share of clauses and penalties. Ensure that you study all these before signing up for a car lease. There are professionals who can help you with this process and if you want to do it on your own, ensure you have all the necessary information.