For most people, a 2-3 year lease will be the ideal term length. This is the most common amount of time to lease a car. Shorter and long term leases are available, but short term leases tend to be expensive, and long term leases remove some of the benefits of leasing rather than buying.
In this guide, you’ll learn everything you need to know about lease terms and how you can decide what is right for you.
Read on for the answers to the following frequently asked questions about lease terms:
What is a lease term?
What lease term should I choose?
What happens at the end of a car lease?
When you lease a car, you are essentially renting the car from the dealership, and the lease term is the amount of time that you agree to rent the car for.
Some dealers offer short term leases, which can be 3 month, 6 month, 9 month, or 12 month lease terms.
On the other end of the spectrum, there are longer term leases up to 4 or 5 years.
However, it is most common for dealers to offer 2-3 year leases.
When determining which lease term is right for you, you should consider:
Your monthly budget for car payments
How you intend to use the car and why you are leasing in the first place
When you choose a short lease term, you pay less interest, but the monthly payments will likely be high. With a longer lease term, your payments will be lower, but you’ll pay more in interest over time and are more likely to end up with out-of-warranty repair expenses. This is why 2-3 years tends to be the lease term of choice for most lessees.
Additionally, if you’re leasing because you like to get a new car every few years rather than deal with the wear and tear of aging vehicles, it doesn't make sense to get a longer lease. If you’re happy with one car for a long time, financing a car to buy will typically make more sense than leasing.
The 3 categories of lease term again are:
Short term
2-3 year
Long term
Read on for a more in-depth look at each category and guidance for how to choose the right one for you.
Short term leases are not very popular, and for good reason. You will pay the most amount of money per month for a short term lease (and it may even be more expensive than financing).
However, there are still times when short term leasing may make sense for you. For example, you might want a short term lease if:
your usual vehicle is undergoing extensive repairs
your previous vehicle needs to be replaced but you aren’t ready to buy
you want to try a different kind of vehicle out before committing to it
you don’t normally need a car or second car but have to spend quite a bit of time on the road over a set period of time due to work or family obligations
If you know you will need a car for several months, but not longer, a short term lease may make more sense than a rental car, in terms of cost and convenience. Since rental car companies charge by the day, with few discounts for longer term rentals, they can quickly turn into a big expense.
2-3 year leases are the most popular when it comes to vehicle lease terms. This term length allows you to have the car for a decent amount of time while still giving you the benefits of leasing. Typically, your warranty will last the entire period of your ownership, so you do not need to worry about expensive repairs. You will also get more reasonable monthly payments by choosing 24-36 months.
Within this category, most people prefer 36 months (a 3-year lease) – this lease term will usually get you lower monthly rates and total costs, whereas 24 months (a 2-year lease) offers greater flexibility if you want to upgrade your vehicle sooner, but will typically cost more monthly and may come with fewer incentives.
Your other option is to select a long term lease, which is typically 4 years (48 months), though there are leases up to 5 years (60 months) that may be available.
These leases will give you the lowest monthly payments, but you do run the risk of outlasting your warranty and racking up surprise costs for repairs and maintenance that leasing otherwise usually allows you to avoid. These leases are also the least flexible in terms of upgrades and often come with higher fees and more paid in interest.
Here are a few questions to ask yourself to help you decide on the right length of time for you to lease a car:
Why do you want to lease a car? Is it a short term or long term need?
Are you happy to pay a little more to get to trade your car in 2 years?
Would you rather pay less every month and stick it out a little longer with your ride?
Is your budget tight enough that a lower monthly payment would be a big help, even if it means paying more in interest over time?
Do you have the cash flow to handle out-of-warranty repair and maintenance costs at the end of a longer lease?
In the end, this decision simply comes down to your budget, needs, and preference. Consider what is important to you and what you can afford in order to make the right choice.
You will have three options at the end of your lease term:
Trade in for a new lease
Turn the car in and walk away
Purchase your leased car from the dealership
When you trade in your leased car, you simply return your car, pick out a new one, and sign a new lease agreement.
Many people who lease like to have a new car every few years, and leasing allows them to do so with minimum stress. Trading in is a great option if you would like to continue leasing, haven’t gone over the mileage limit, and haven’t had major wear and tear on your car.
If you have decided that leasing isn’t right for you, you can turn your lease in and walk away.
You will be responsible for any fees due to excessive mileage and excessive wear and tear, but beyond that, you will be free to do as you wish. Maybe you do not need a car at all, or maybe you’d be happier buying a new or used car.
Buying out your leased car means purchasing your car for the residual value that is listed in your contract.
This is a great option if any of the following apply to you:
The residual value of the car is less than the market value of the car
You really like your car and you don’t want to part with it
You have gone over the mileage allowance and will be responsible for overage fees
You have significant wear and tear and will be responsible for fees
It is not uncommon for residual values that are listed in the lease contract to be less than the market value of a car. This is because residual values are determined at the beginning of the lease and cannot be changed. The increased competition in the used car market over the past several years has caused an increase in market value, so your buyout price may be cheaper than the car’s value. This means that even if you do not want to keep the car, you might be able to buy your leased car and sell it for a profit. Getting a lease buyout loan is a great way to do this.
Or, maybe you just really like your car and don’t want to part with it. Buying your lease out is a great way to own the car that you love, and is usually a very affordable option.
Now you should have the information you need to decide which lease term length is right for you.
Leasing a car is a popular option for many people, but it can be hard to decide what length of lease term is appropriate. Taking a look at your needs and your budget can help you determine which lease term length is best for you. And when your lease ends, a car lease buyout loan can help you keep your car.
If you are interested in buying out your lease, the experts at Auto Approve are here for you. Our agents can guide you through the application process and find the car lease buyout loan that is right for you.
