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However, maybe the reason why the vehicle leasing industry somehow thrived in the middle of such a hard-hitting crisis and continues to do so until normalcy and car ownership is picking up its pace from when it last left, is because the people are looking for alternative methods for transportation without having to risk their health. In order to secure a healthier mode of transportation, the people turn to vehicle lessors to provide this and in turn, the companies prepare a Vehicle Lease Agreement. To learn more about how vehicle leasing works and how integral of a document a vehicle lease agreement is, continue to read below and you may even download the samples we have especially picked for your easy digestion.
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What is a Vehicle Lease Agreement?
A Vehicle Lease Agreement otherwise referred to as a Vehicle Lease Contract, Lease of Vehicle Agreement or a Leasing of Vehicle Agreement, is either a verbal or written agreement between an individual who wants to temporarily be in possession of a car known as the lessee, and the owner of the vehicle also formally called the lessor.
Like most agreements, it primarily functions to protect the parties involved in the case of misunderstandings during the transaction and for contractual disagreements to be resolved assuming that the agreement covers the corresponding resolutions. Because of this crucial role, it is encouraged that agreements be in written form with enough physical copies to not only serve as evidence that the arrangement does exist but for backup if risky situations were to arise that require a little bit of paranoia after all, it pays to be a moderate overthinker.
Moreover, a vehicle lease agreement contains all the necessary information that both parties need to be aware of for the completion of the vehicle lease. It stipulates the responsibilities needed to be fulfilled especially by the lessee, the terms and conditions that they are to be governed with, the duration through which the agreement will last, the payment amount, terms, schedule and the interest rate to be charged by the lessor.
Other information pertaining to the vehicle that are just as important to be present in the document include its descriptions and the state of the vehicle from when it was leased may it be the damages it has incurred since its purchase or even if it is in a well-kept condition. These will all be explained in detail as you continue to read more of the article.
In summary, when you hear lease agreements you ought to immediately think that someone is to borrow a property from its owner and treat it as if it were their own for a specified period of time and in exchange are monthly payments. It could be seen as some sort of manual intended more so for the individual who is to borrow the property, in this case, the vehicle, for them to understand how to properly maintain its condition when the lease is up and they have to return it. A vehicle lease agreement exists to ensure that both parties understand how to best make the most of their leasing experience that it only has to undergo minimal issues and at best, none at all so it is of utmost importance that the document is to be read and understood thoroughly and mutually agreed by both parties. It will only be legally binding as soon as the signatures of the lessor and the lessee are affixed signifying their consent to succumb to everything that is stipulated in the agreement.
Vehicle Lease vs Vehicle Rental: What’s the Difference?
While both lease and rent semantically mean to take temporary ownership of a property owned by someone else in exchange for periodic payments, that’s pretty much where their similarities end. There are differences between the two that we feel we need to clarify especially because the nature of both agreements should be second-guessed and be made suited to the kind of arrangement you want to commit yourself to.
We also have not mentioned the primary characteristic of a vehicle lease agreement so read more below to find out what makes it distinct from a rental agreement!
A primary difference between the two lies in the time frame. A vehicle lease agreement tends to be longer in duration, with most common terms lasting for at least a year and more, and this is so because this agreement purposely wants you to experience a semblance of what car ownership is like. Car rental agreements, on the other hand, are shorter in duration as in, there are car rentals that allow their cars to be rented for an hour max, just for the sole purpose of running errands. There are some terms that last for one to two days and some for a week. Rental agreements play to the advantage of visiting tourists in a foreign country for a vacation so this is especially the kind of arrangement that is most opted.
Actually, this point might not hold that much relevance in the discussion of the difference between a lease and rental because it doesn’t exactly pertain to the arrangement per se but we’ll mention it anyways as it adds to the further separation of the two terms.
Leased vehicles are most commonly offered by car dealerships which means they also offer to actually sell cars as well while car rental agencies provide, you guessed it right, car rentals. Not exactly a matter of significance, right? But, to be fair, at least you know better which agencies to visit for the kind of purpose you have in mind.
Insurance policies differ from company to company but more so depending on the arrangement. While the insurance details are an important component of the contract to have, some rental companies might not provide the same compulsory option as car dealers that lease cars do. You will be asked to own a minimum of liability insurance but for lessees, it is compulsory that they carry full coverage insurance policies that mostly have to do with covering for damages incurred in collisions or from natural calamities.
A salient characteristic of a vehicle lease arrangement that truly creates the difference is that to lease a car is indicative of looking forward to completely owning it at the end of the lease term, that’s if the lessee is of course, headed towards that direction and consents to the lessor’s offer of complete transfer of ownership. There’s also this thing called a lease-to-own deal where the point of leasing a vehicle in the first place is to purchase it. Otherwise, the lessee would have to return the vehicle to the lessor in the same condition when it was first handed to them.
Rental agreements, however, do not offer this ownership potential since it works best under short-term durations.
What is Inside a Vehicle Lease Agreement?
A well-written vehicle lease agreement is one that takes into consideration the interests of both parties and protects them and sees to it that both parties take up equal responsibilities and are accountable to the same consequences should breaches to the contract occur or contractual disputes arise. While we may have mentioned that the document is more so intended for the lessee, this does not rid the lessor of the same burden of having to fulfill the responsibilities in the agreement.
To get a glimpse of what a properly drafted vehicle lease agreement looks like, we list down the most basic but important sections and the kind of details they are specifically asking for. Read further below!
1. Description of the vehicle
It is very important especially for the lessor of the property to provide the details of the vehicle not only for documentation but because the kind of vehicle you are to lease will determine the lease agreement you are to commit yourself to. The standard information that is asked of in this section are the following:
- Model, Make, and Year of the vehicle
- Vehicle Identification Number (VIN)
- License Plate and Expiration date
- Odometer Reading
- History of repairs
2. Basic Information
Some agreements start off with having to name the parties involved. It does not ask for explicit details, just the typical information such as one’s full name, contact information, and their address.
Moreover, if the lessee has in mind to register an additional driver for the same property, they must also provide the required information as well as supplemental documents to qualify for the role.
3. Lease fee and payment details
An agreement cannot make do without information on the lease payment and this should be explicitly detailed as in, it outlines the payment, the monthly rent plus the equivalent monthly depreciation.
It is important for the lessee to take their time and read up on the section that talks about the lease payment as this shall cover the schedule that they are to cash in the payments. This part in the agreement will also talk about penalties that are to be charged by the lessor should there be a delay in the payments or if there are damages to the vehicle itself.
4. Period of Use
This simply details the total length of the lease and when the agreement shall be executed as well as when exactly it will end.
5. Causes for Termination
While it is an added expense to choose to get out of your vehicle lease earlier than what was initially agreed upon, especially because they still would have to require you to keep making the remaining monthly payments, it is certainly not impossible to do so.
Some agreements will read out the situations that will allow for early termination of the contract and most of it have to do with serious health conditions impeding the ability to make the monthly payments.
If you are fortunate to have made a deal with a lenient company, chances are, regardless if you are absent with a debilitating health condition, they may agree to work out a reasonable deal that will let you off the hook easier and charge you less. However, as this is still a business, there is a good chance that the leasing company will work out a deal that forwards their interests before yours which is why it is very important that you understand what you are getting yourself into in the first place and for you to have a full grasp of your financial status. It also pays to implement a budget plan and religiously stick with it.
As previously mentioned, car dealers who offer to lease their cars will oblige you to own an auto insurance despite the obvious that is not owning the vehicle. The common insurance policies that most leasing companies require due to the frequent and inevitable occurrence of accidents leading to damages on the vehicle are collision and comprehensive coverages.
While indeed costly, to carry a car insurance policy with you does help in protecting you from additional financial burdens in the unfortunate event that you get into an accident. There will be multiple insurance agents who will sweet talk you into purchasing their insurance options and while that is almost impossible to avoid, be sure to not hesitate to inquire should you have any concerns about their deals.
7. Vehicle management
This section shall explicitly talk about the ways through which the vehicle has to be managed for successful execution and eventual completion of the lease term. The lessor has to provide the lessee with the necessary information about how best to maintain the condition of the property. This shall also define the specific situations in which the lessee is prohibited to use the vehicle for further precautions.
Moreover, this section shall also mention if the lessor is to limit on the mileage use of the lessee over the term of the lease. Some leasing companies may also opt to not place a limit on the number of miles to be used and offer unlimited mileage. Either way, take note of this as you read through your agreement.
Additionally, this section shall also detail the repercussions that the lessee is to expect if they were to return the property with damages, be it minimal or excessive.
Some provisions stipulated in this section is in relation to where and when the vehicle will be returned, the conditions that the driver/s must be in in order to qualify driving the vehicle as in, they are not to be under the influence of alcohol or drugs, the number of passengers and weight the vehicle can carry, and to take responsibility of the costs pertaining to the vehicle (ie., fuel, parking fees, highway and bridge tolls)
Basically, this section is what we mean when we say the agreement is intended for the lessee as it explains the obligations that they are accountable to perform throughout the whole duration of the lease term for proper maintenance of the vehicle.
What is a Vehicle Lease Agreement?
A vehicle lease agreement is preferably a written document that allows an individual to take temporary legal ownership of a property lent out by its original owner assuming that they are to comply with the terms of the property’s usage which shall also be comprehensively detailed in the document. The agreement shall be executed if the lessee, the borrower of the property, agrees to make the following payments charged by the lessor who is the property owner.
In essence, the vehicle lease agreement protects the interest of both the lessor and the lessee as it should provide information about how misunderstandings and contractual disputes can be avoided and/or resolved.
Can You End a Car Lease Agreement?
Most vehicle lease agreements end as soon as the term of lease indicated in the contract is up. However, it is also possible to cancel the lease even before the term is up. To do so, there may be grounds for early termination that is written in the contract or you can personally take this to your car dealer and negotiate how you are free yourself from the agreement.
What Should be Included in a Lease Agreement?
In general, lease agreements provide the following items:
- Parties involved including that of the lessor/landlord
- Term of Lease
- Payment details, conditions, frequency and schedule
- Repairs and Maintenance