Financial leasing and operational leasing are both viable options when you are leasing a car. But which one should you choose? Here we will discuss the pros and cons of each choice in order to allow you to make an informed decision.
In a financial lease, the lessee (consumer) chooses a vehicle, and then the lessor (finance company) purchases the vehicle and signs a contract with the lessee. This contract details the terms of the lease, including the length of the term, payments, interest, and any penalties that may be assessed. The finance company remains the legal owner of the vehicle until the term of the lease is up. However, the consumer is responsible for all repairs and maintenance necessary. At the end of this lease, the vehicle can either be returned to the finance company or purchased for a reduced price and becoming the legal owner of the vehicle. This is what we typically think of when we hear the term lease.
Operating leases are typically much shorter than financial leases. Another key difference is that in operational leases, the finance company is fully responsible for any maintenance or repair necessary. While this may seem ideal, there are also negative points to choosing this kind of lease. Operating leases are often more expensive per month than financial leases because the risk of owning the vehicle belongs to the finance company. They will factor in the cost of any repairs and maintenance that will need to be made, as well as protecting themselves in the event that the car is damaged. Also, you are restricted as to how much you can use the vehicle. Operating leases will dictate a set number of miles that you are allowed to drive within the lease term. If you exceed this limit, you will be charged a penalty fee. Also, at the end of an operating lease, you do not have the option to purchase the vehicle. In many ways, an operating lease is simply an extended car rental.
Both of these options have positive and negative attributes. When deciding between the two, you must think of how you plan to use the vehicle and how long you plan on keeping it. Operating leases are great for people who don t plan on spending more than a couple of years in a car. They are also great for companies who don t want to have to report a vehicle as an asset. Financial leases are ideal for people who might want to buy a specific car, but don t want to be tied down to the decision. At the end of a financial lease, if you love your car you can purchase it. If not, you simply choose another car to lease. In the end, a little bit of planning and thought can help you decide which of these types of leases is the right one for you.
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