Posted by Mike Hughes
The decision to lease a car should be based on the financial attractiveness of the lease compared to borrowing the funds to buy the same car. With a lease, ownership of the car rests with the leasing company, the lessor, which enters into a contract with the person leasing the car, the lessee, for use of the car over the term of the lease. Financially, the size of a lease payment results from the interest rate of the lease and the principal to be repaid over the lease term.
Evaluation of the attractiveness of a lease is much more than a simple assessment of the proposed payment. Leases vary dramatically in their assumptions, conditions and buyout privileges, which determine economic benefits at the end of the lease term.
The major legal and financial difference between leasing and buying is the ownership of the car. With a purchase, the ownership of the car remains with the purchaser, although financing might be registered against the car as collateral for a loan. The purchaser owns the car, but agrees to "secure" the car loan with the car. When the loan is repaid, the purchaser owns the car. If the purchaser fails to pay the loan as agreed, the lender has the legal right to seize the car and sell it and keep the proceeds.
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