How Does Leasing A Car Work? 5 Must-Read Facts

How Does Leasing A Car Work? 5 Must-Read Facts
"How does leasing a car work?" is likely a question that's popped into your head. After many weeks or months of figuring out a way to drive a car without actually owning one (cars can be costly to maintain, after all), car leasing is the best last resort. But how exactly does car leasing work, and how is it different from a car rental? We'll discuss this topic and some considerations when taking out a car lease. Let's get right to it.

Share This Post

Share on facebook
Share on twitter
Share on linkedin

Table of Contents

What Is A Car Lease?

Car leasing is an arrangement wherein you make several monthly payments to rent a vehicle for a specific period.

But wait, that sounds a lot like renting a car. Not quite. Car rentals are short-term. Most rental companies offer one-day rentals to customers who need them for a weekend getaway or personal use.

On the other hand, car leasing is long-term. You get to use the vehicle for various purposes (commercial, corporate, or personal) for several years, as agreed between you and the car leasing company.

Depending on the car leasing company you’ve engaged with, you can trade a run-of-the-mill Toyota with a top-of-the-line, luxury BMW 4 Series Convertible — that is, if you’ve held up your end of the bargain and made the necessary monthly payment at the end of the lease.

Then, you can start again with a new car lease and drive the new vehicle for whatever purpose.

What's Included In A Car Lease?

What's Included In A Car Lease?​

A car lease is an agreement between you and the leasing company to “borrow” a vehicle for an x number of years (also known as the lease period).

When leasing a car, the value of your monthly payment will depend on the vehicle’s depreciation. This is the difference between its selling and purchase price. 

Depreciation rates vary across different makes and models, but you can expect 15-35% in the first year, down to 50% over the next three years.

Your car lease contract can cover the following:

  • Down payment/upfront costs of leasing a car

  • Lease length (you will generally encounter two types of lease periods:
    • Brand new car – A minimum of 3 years or above
    • Existing car – A minimum of 6 months or above
  • Termination fees (if you end up returning the vehicle before the leasing period ends)

  • Mileage allowance or how many kilometres you can drive yearly – Most leasing companies only allow a mileage limit of 15,000 to 25,000 kilometres. They may ask you to pay for every kilometre exceeded)

  • Wear and tear – The lessor (leasing company) may ask you to pay extra for excessive wear and tear on the leased vehicle. Eating, smoking, or other activities may increase the likelihood of incurring additional wear and tear fees.

  • Annual insurance and road tax coverage – There’s no need to renew road tax or find an insurance company to cover the vehicle. These are already included in the leasing plan.

  • Regular maintenance and servicing – Car leasing packages include maintenance costs for tyres and batteries.

  • Flexible lease terms – Lease a corporate vehicle or a brand-new car of your choice. Many lease agreements are flexible and allow customers to choose a plan that matches their lifestyle needs.

  • Replacement vehicle – If you encounter problems with the car, the lessor can offer a replacement vehicle to ensure continuity.

Why Should You Choose Car Leasing Over Financing In Singapore?

Singapore has one of the highest car ownership prices. If you wish to buy a car, you’re not only paying for its purchase price but other fees and taxes, including:

  • Open Market Value (OMV)
  • Certificate of Entitlement (COE) renewal
  • Road tax
  • Additional Registration Fee (ARF)
  • Emissions surcharge
  • Insurance premiums
  • Maintenance costs
  • Car loans


Buying a car in Singapore is no walk in the park, which is why many individuals opt for car leasing instead, and for several reasons:

Low Monthly Payments

Monthly car leases are generally lower than the payments you’ll make after taking out a loan for a car.

Lower Down Payment

In addition to low down payments, car leasing generally offers lower down payments (10%) than buying a brand-new car. For example, vehicles with an OMW of $20,000 will require you to make a 30% down payment. Anything above $20,000, you’ll end up paying 10% more.

Wide Variety Of Models To Choose From

If you’ve always dreamed of driving luxury or performance vehicles, leasing a car is more affordable than financing. It’s far less expensive than buying a new vehicle and covering repair and maintenance costs yearly.

Comes With Insurance

The leasing company will already cover the car’s insurance. This gives you peace of mind knowing you won’t need to scour dozens of motor insurance companies for a comprehensive car insurance plan that meets regulations.

No Need To Trade Or Sell The Vehicle

Most car owners are faced with the dilemma of whether to dispose of or sell their used car. This doesn’t happen with leasing since you can always return the vehicle to the lessor without any strings attached.

What Should You Consider Before Leasing A Car?

Leasing a car may be new to you, and the jargon surrounding lease agreements can be confusing. This is why it’s essential to understand common car leasing terms and what they mean:

  • Acquisition fee – Your car dealership or leasing provider will need you to pay upfront. This is also known as the down payment or acquisition fee for lease arrangements. You may either negotiate this fee or find a company that doesn’t require it.

  • Capitalised cost – This is the vehicle’s initial price. It’s negotiable in a car leasing arrangement, similar to a car purchase.

  • Disposition fee – Some companies require customers to pay a disposition fee at the end of the lease. This helps them cover the costs of preparing the car for sale.

  • Lease term – This refers to the end of the lease.

  • Purchase option agreement – You can negotiate with the company on how much you’re willing to buy the vehicle for once the lease expires.

  • Residual value – The vehicle’s value at the end of the lease. The lessor or a third-party financer or dealership will usually determine this.

  • Proof of income – The lessor may need you to present proof of income showing that you earn three times the leasing rate. This guarantees you can make the lease payments on the agreed monthly dates.

  • Security deposit – The lessor may request a refundable fee to cover additional damage to the vehicle. It can also cover extra mileage fees if you exceed the mileage allowance. If at the end of the lease, the car is in the same condition as when you received it, the lessor will return the security deposit in full.

What Should You Consider Before Leasing A Car?

Leasing a car is a cost-effective option for people who need an alternative means of transport. It’s also a great way of driving the newest models in the market without paying for all the costs associated with buying a car in Singapore.

Here’s what you need to do to start your car leasing journey:

Choose The Right Vehicle

With a multitude of options to choose from, picking the right car to lease can be overwhelming. But the good news is, most companies offer brand new makes and models.

Think about what type of vehicle you need. Do you need a small SUV to drive your kids to and from school? Or will a sedan fit your lifestyle better?

Determine how the vehicle will fit into your daily activities, then narrow down your options. You can even test-drive the car before committing to it.

What we offer: Hong Seh Car Leasing in Singapore carries the latest models for top car brands like Toyota, Lexus, BMW, Mercedes-Benz, and more. Click here for a complete list of car models available for lease.

Shop Around For Different Leasing Companies

Leasing a car is a significant financial undertaking, and it requires extensive planning. Don’t just agree to the first lease term you receive — do your due diligence by looking at other leasing services and what they offer.

Ultimately, all you want from your car lease is a good deal. Don’t worry about taking time with your decision. Look at company reviews and weigh them against reviews from other companies.

Ensure You Can Make The Monthly Lease Payments

You don’t need good credit standing in Singapore to lease a car. However, you will need to prove that your income is sufficient to make the monthly payments. 

This means you’ll need to earn at least 3-4x the value of the lease (you must be making $7,500 at the very least).

Discuss first with your chosen lessor and see if you’re eligible. They may request documents like:

  • Employment pass
  • NRIC
  • Passport
  • Residential address
  • Letter of employment including term, salary, benefits, and allowances

Conclusion About How Car Leasing Works In Singapore

Ever wanted to drive a vehicle without actually buying one? We’re not talking about renting. We’re talking about leasing (for a monthly fee).

Car leasing has become a popular option among individuals who need long-term transport. Unlike a rental that lasts for only several days or months, car lease terms can last for up to 4 years, depending on the mileage limit.

Lease a car in Singapore now with Hong Seh Leasing. We offer Comprehensive and Lease-to-Own packages in Singapore. Buy out the car, finish the lease, or trade it after it ends — we give our customers what they need.

Frequently Asked Questions About How Does Leasing A Car Work

Gap insurance on leased vehicles covers the difference between its ACV (Actual Cash Value) and how much you still owe the lessor. If your car gets stolen or totalled, your comprehensive coverage will pay a sum equal to its ACV.

You may return a damaged leased car, but the lessor will require you to pay extra fees for exceeding the vehicle’s normal wear and tear.

When the lease duration ends, you can return the vehicle to the lessor or buy it for its residual value.

Yes. Hong Seh Leasing offers new cars for lease. We offer car leasing for different vehicles, such as:

Questions? Contact Us Today!