We see it almost every day. Someone who is not quite fully knowledgeable about car leasing gives advice to someone else even less knowledgeable. It’s kind of a version of the blind leading the blind.

One of the most common nuggets of misinformation that continues to proliferate is that “leasing is simply long-term renting.”

To a degree, pointing out that leasing and renting are similar is not entirely incorrect. However, it often leads to incorrect assumptions about leasing when that similarity is extrapolated too far. Leasing is only like renting at a very basic level.

Here are some of the many misunderstandings

• “I recently leased a new car and now don’t like it. I want to swap it for another car.”
• “I have decided I no longer need my leased car and want to return it.”
• “I got into an accident with my leased car and would like to turn it in.”
• “I don’t need to maintain and repair my car because it’s only leased and doesn’t belong to me.”
• “Why do I pay for taxes, registration fees, and insurance when I’m basically only renting.”
• ” Why is my credit score important if I’m only leasing?”
• “Leasing is like renting in that you throw away money and have nothing to show for your money.”
• “Leasing costs more than buying with a loan.”
• “Leasing is always a bad idea.”

Here are the facts

Leasing is actually a form of loan, similar to old “balloon” loans, in which you only pay for a part of the vehicle (its depreciated value) in monthly payments, and then make the final payment by returning the vehicle to the lease finance company — or paying it off in cash to fully purchase the vehicle. That final payment is the thing that makes it different from a traditional car loan.

Since leasing is essentially a loan, the lessee must sign a legal promissory contract, which means he must be at least 18 years old, have good credit, and have a steady fulltime job.

A leased vehicle belongs to the lease finance company until the lease is completed and paid off similar to the way a bank or finance company holds title to a vehicle purchased with a loan.

If a lessee wants to end his contract early, he must pay off the remaining balance. Same as for a loan.

If a lessee or loan holder misses payments or otherwise defaults on his contract, the car will be repossessed. Same with a loan.

Even though a leased vehicle is owned by the lease finance company, it passes responsibility for taxes, insurance, and registration fees to the lessee — since the lessee is the one who is actually getting use and benefit from the vehicle.

If a leased vehicle is involved in an accident, the lessee is expected to have it repaired to maintain its undamaged value, the same as the owner of a purchased vehicle would want to do to maintain his vehicle’s value.

Since leasing only pays for a vehicle’s expected depreciated value, the money that is lost is the same money that a purchased vehicle also loses in depreciated sell or trade value. It’s money “thrown away” but it’s the same money whether the car is leased or purchased.

Lease payments are calculated using a standard mathematical formula based on exact, disclosed, and verifiable numbers — just as a loan is. Rental payments are not. Rental payments are more or less arbitrary, as determined by the rental company, and cannot be calculated with a formula or verified by customers, as can lease payments.

Summary

Even though car leasing and renting may seem to be very similar, it would be a mistake to use that very basic similarity as a basis for understanding leasing. Leasing is a form of car financing, like a loan, and has most of the same characteristics. The terms, conditions, and responsibilities of a lease are very much like a loan, not at all similar to renting.