With car leasing, you basically rent the car from a dealer for a set period of time. You pay a monthly rental fee of 24,36 or 48 months, but these fees are usually lower than if you bought the car outright. When the car leasing ends, you return the car to the dealer and rent a new model, or just walk away.

Renting a car is a great option for those who want a low monthly payment or who like to drive a new car more often. When the lease ends, people can return their car and quickly replace it with another new car with the latest features. But leases come with many restrictions and penalties.

Most rental agreements prohibit people from driving more than 12,500 miles a year. If you increase the mileage of your vehicle, you end up paying a hefty penalty. You also cannot modify your rental vehicle, or damage it in any way. You may be charged for every scratch and scrape.

The biggest downside to renting a car is that by the time it's over, you're worthless. You have no assets to sell. When you keep leasing, the payments never end.

Let's take a look at some important factors you should be aware of when it comes to car rental.

Mileage considerations 

When someone buys a car, they can drive as much or as little as they want. Whether they drive 5,000 miles a year or 30,000, it doesn't matter. However, there is a cap on the number of miles a person can drive per year in a lease. Most leases limit a person's mileage to between 12,000 and 15,000 miles per year (although this can sometimes be negotiated in advance).

Exceeding the limit means paying a hefty fee to the dealer who rented the car. Annual mileage limits are set to protect dealers and ensure they can lease or sell the car again when it is returned. The lower the car's mileage, the more the dealer can charge for resale. However, this does nothing for the renter, except to make them worry about how many cars they are driving.

Upfront costs

Most car salesmen are savvy enough to often tell customers that it is easier and cheaper for them to rent a car than to buy one. But wait a minute. When people buy a car, they often pay fees in advance, including a down payment, taxes, and registration fees.

By contrast, people who rent a car typically pay the first month's rent, as well as a refundable security deposit, down payment, taxes, registration fees, and other rent-related fees such as a "lease starter fee." Add these factors together, and the upfront costs associated with leasing are often much higher (or at least equal) than simply buying a car.

Additional costs

Salespeople sell people rental products in dollars and cents, and they point out that the monthly rental cost is almost always less than the monthly payment to buy a car outright. What they did not mention, however, was the fee that would be charged if a person had to terminate a tenancy before the termination date specified in the tenancy. Early termination can be very costly.

In most cases, early termination basically requires a person to pay the rest of the rent in a lump sum. This means that if the lease is terminated early, early termination is just as expensive as complying with the contract. 

In addition, the renter is responsible for the wear and tear of the vehicle. You can bet that dealers will make their customers pay extra for wear and tear that is considered excessive or beyond normal use. These fees aren't cheap, and many dealers will keep their customers on the hook for any wear and tear on the vehicle. 

To be fair, the car you buy comes with additional costs, such as shipping and administration fees. At least the fees are paid upfront and you can agree or disagree before you sign. When you buy a car, no additional costs apply years later on the road.

Financial assets

When the lease ends, people simply return the car to the dealer. What did they get in return? That's right, nothing. However, those who own a car outright own an asset that they can sell or trade for a new car. If they keep their cars in top condition, they're likely to drive for a few more years without those pesky monthly payments.

Of course, a car is a depreciated asset; it will never be worth as much as you paid for it. But it's still valuable. If a car is seven or eight years old and has more than 150,000 miles on it, most cars can still sell for several thousand dollars, depending on their condition.

Selling a used car you've been driving for a few years (no payments) for $5,000 is better than returning a leased car to a dealer and getting nothing in return, as long as you don't mind driving a car that's nearly 10 years old.