Should a Car Lease Term Be Short or Long?

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October 16, 2013

A short car lease term requires higher monthly payments, but if you expect to be lured by a new model before long, you'll avoid early termination fees.

When choosing a car lease term, your choice will be largely dependent on the length of commitment you want to make.

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Short Term Lease
A short term car lease is generally considered to be between six and 24 months. Leases less than 24 months can be found on many lease swapping websites. These sites have become popular for individuals who want to get out of their leases and avoid the early termination fees and for people who are looking for short term leases. A 24-month lease is rarely much different from a long term lease except for the length of the lease.

Long Term Lease
A long term lease is considered to be a lease longer than 24 months. In many cases, this means three, four or even five years, although three to four years is the average length of time for a car lease. The monthly payment for a long term lease is usually substantially lower than the monthly payment for the purchase of the same car, which is why long term car leases can be very attractive.

However, it is important to note that the other monthly expenses associated with a leased car can be more expensive than a car purchase, particularly insurance. In most cases, a leased car will require not only liability insurance, but also collision and comprehensive with a zero deductible—all of which can be very expensive.

How to Choose the Length of Your Car Lease Term

Here are some things to think about when choosing a long term or short term car lease.

  • How long do you need the vehicle? Obviously, a factor in a car lease is knowing what length of time you want to be driving a specific vehicle, as most conventional leases lock the borrower in for a certain amount of time
  • Are you subleasing? A lot of drivers will be looking to take over a lease, or looking to get out of the lease term early without paying penalties. In these kinds of situations, a short-term lease is often more desirable
  • How do your warranties factor in? If the lender is offering a specific period of time where a warranty applies to a vehicle, that is a good length for lease term. Talk to your lender or leasing company about what specific parts and labor warranties apply
  • What about gap insurance? Gap insurance is an extra kind of insurance policy that you take out on a vehicle to insure the difference between what is invested in a vehicle and what its market value is. Gap insurance is often necessary for a leased vehicle, but as the vehicle depreciates, the gap insurance will no longer be necessary. A savvy driver can look at the gap insurance requirements and make a decision on the car lease term accordingly

These are just a few things to consider when thinking about your custom lease options and talking to the leasing company about what is available to you.

The Benefits of Early Termination

You may want to terminate the lease on your current vehicle early. This can have some drawbacks, but the benefits include getting a car with lower monthly payments or, in some cases, getting out from under the payments entirely.

Whatever makes you decide that you may want to end your lease early there are a few ways of going about it. You can return the leased vehicle, buy out the lease, lease a different car or undergo a lease transfer.

  • Return the car. If you return the car to the dealership, you are obligated nonetheless to make the payments. That doesn't work well for you, as you have to pay on a car you don't have
  • Buy the car. You can buy out the lease on your car, hoping that its market value exceeds what you owe. It's a gamble that can sometimes pay off, but usually you end up buying the car for an amount that you won't get back if you turn around and sell it
  • Lease a new car. Leasing a different car from the same dealer is a good way to terminate your current lease early, but you have to know the car's residual value or how much the car is worth or will be worth at the end of the lease term. If the car has held its value, the payments on your new lease might go down, but the opposite could be true
  • Swap the lease. Lastly, the way to get out from underneath the lease without taking on another is a lease swap, whereby you transfer the car and payments to another party. If the leasing agent will allow this, you both can benefit. The other party has no down payment to make and you no longer have a lease payment

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