If you are thinking of getting a new car, it means that you either plan to finance it or to lease it. Financing a car with a lease can be quite lucrative depending on how you plan to use the car and what you decide to do once your lease is over. Before anything, it is important to understand how is a lease different than regular financing options.

1. Down payment

Financing a car with a lease requires a down payment. Usually, it is 20%. If the down payment is higher, the residual value can be lowered or the monthly payments can be smaller.

2. Residual value

When you lease a car, you do not own it. You pay an upfront amount of cash and determine a residual value. Both amounts are subtracted from the value of the car and what is left determines what is the monthly payment. At the end of the lease, you can either pay the residual value, and then you own the car or give the car back.

3. Servicing

When you lease a car, the company you lease it from will take care of all the maintenance costs associated with the car. This can be a great advantage as you do not like to take care of things yourself. All these costs add a bit of value to the lease plan and make it more convenient for the ones that just want a new car without having to stress themselves about anything.

Leasing is usually recommended for people that want a new car as it makes the monthly payments more manageable. If you can save the residual value by the time the lease expires, then you will be able to outright own the car. It is also a viable option for owners that always want to drive a new car every 4 to 5 years.