Lease agreements define a period of time where you will have use of something (a car). The items current value is determined, and the items value estimated at the end of the lease. The difference between
Borrowing money to pay for a car makes buying a car much easier. Your car loan may allow you to pay for a car over 5 years, but the car may last 10 years, 15 years or longer. Paying for the car quickly creates less risk for the lender, so you can expect a more favorable interest rate. At the end of the first 5 years the car is worth less than the amount you bought it for, but more than the zero you owe to the bank. While you were paying, you paid for more of the car than you used, and the remaining car is all yours! Leasing a car is another option. With a lease, you are trying to only pay for the amount of car that you’re going to use – to do this you’ll bargain to buy the car, and sell it back to the dealer at the end of the deal. Figuring out how much car gets used over a certain period of time involves determining the fair market-value of that car now, and at some projected point in the future given a certain amount of usage and maintenance. The difference between the value today, and the value at the end is what you will need to pay, with a fee for borrowing the money of course.