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If you are looking to buy a car, but you think you can’t afford it, leasing may be an option: it involves a low monthly payment, no down payment, and allows you to deduct the expenses derived from its rental and use.

Auto leasing is a financial institution loan based on a lease contract with a promise to buy and sell. Unlike a conventional automobile loan, it must be paid over a fixed term that may vary between two and three years using monthly installments.

While the customer is paying for the vehicle, it will remain in the financial institution’s name that granted the lease. After this period, the car will be transferred to the applicant, renewing the vehicle or keeping it permanently.

Since it is a lease and not a vehicle purchase, there is no legal or accounting acquisition, which frees the client from different obligations. Through automotive leasing, individuals and companies can deduct up to a certain amount of the car’s rent.

A benefit of leasing is that if you acquire a car through this method, compared to a traditional loan, you will not have to pay a down payment. This amount is supplemented by a deposit plus the car’s first rental, or there are finance companies that ask for 10% of the vehicle’s value. While with a traditional loan, the average down payment is 20% of the car’s value.

There is no interest rate in leasing but rather a fixed amount to be paid monthly, in which commissions, insurance, and the cost of financing are already implicit. In a traditional loan, finance companies and banks mention annual interest rates ranging from 8 to 14%.

After that time, there is the option for the client to purchase the vehicle, for which he/she will pay a residual value (agreed from the beginning of the contract) of between 15 and 20% of its cost, or he/she may renew the contract and change the model.

Whether or not you currently have the financial solvency to pay for your new car, you can apply for a loan that can be pre-approved. Seeking leasing pre approval for an auto loan before you go to the dealership can clarify your purchasing power and give you leverage when negotiating the deal. And while getting pre-approved may affect your credit a few points, the effect is short-lived. Here’s what you need to know.

Having a leasing pre approval means that a lender has approved you for a specific loan amount. Upon being pre-approved, you will receive a letter stating the approved loan amount.

When you are pre-approved, you provide documented financial information (pay stubs, statements, obligations, credit report, etc.) for the lender to review and verify. Your benefits include:

  • No fees
  • Gives you negotiating power
  • Helps you know precisely what you can afford
  • Allows you to close faster

Don’t forget, being pre-approved does not guarantee you the loan. You will have to complete the application, get through the underwriting process, and wait for final approval. But being pre-approved indicates your intent to buy, so sellers look favorably on buyers with pre-approval letters.


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