Whether getting a leased car makes sense ultimately depends on your situation, including your budget, financial resources, and commute. One of the best parts about buying a car is that you one-hundred percent own it; you can sell it and make a profit at any time. One of the drawbacks, however, is that you’re on your own when it comes to repairs.
Owning a leased car comes with lower upfront costs and monthly payments. Most leased cars are current models, meaning you could drive a new car at used car price. Drawbacks come with the lack of equity, mileage limitations, and other fees.
When Leasing a Car Makes Sense
To give you the run-down, leasing a car is a lot like paying rent. You don’t own the apartment, just like you don’t own a leased car. While your apartment’s maintenance company fixes most of your unit’s damage, it won’t fix all of them—same with how dealerships service leased cars. So, if you’re looking for a short-term solution to a long-term need, leasing car would work for you.
Other benefits of leasing a car include:
Affordability
Previously, we mentioned that the monthly payments on a leased car are typically cheaper than buying a new vehicle. Your monthly payment (just like owning a car) will be impacted by:
- Your credit score
- Sales price
- Occupation
- The length of the lease
- Your average driving time and distance
Nowadays, more and more dealerships are seeing impressive profit margins from leasing cars. People are simply less intimidated by the process––and for some companies, you can even renew your lease online, cutting down on confusing paperwork.
Because some dealerships even push for leasing over selling, there could even be room to negotiate when shopping around.
You Could Drive a New Car Every Couple of Years
Ever wonder how so many people in your neighborhood are always able to afford the newest, flashiest cars? The answer is simple: they don’t actually own them. They’re leases.
According to Investopedia, most leases only last for a few years. At the end of your lease, you could either stay with the car you have or upgrade to a newer one at no increased cost. This means that to “stay in the loop,” you don’t have to worry about trading in or selling your car; you could do everything through the dealership.
The Leasing Company Will Pay for Most Repairs
When you sign a leasing agreement, the contract should clearly outline what repairs the dealership will cover. Usually, manufacturer’s defect, oil changes, and new tires are covered. This could save you thousands on repair costs alone.
The dealership usually will not cover damage incurred from a car accident or another act of negligence. They would probably require that your insurer cover those expenses.
When Leasing a Car Doesn’t Make Sense
Financial advisor and television personality Suze Orman told CNBC: “I personally think you should never, ever ever ever, lease a car, do you hear me?” Orman is not alone in her claim. You’ll never have a shortage of books, websites, and videos warning you against leasing a car. Why?
You Would Spend the Same Just Buying a New Car
Suppose that you lease a car for $400 a month. If you continue leasing the vehicle for four years, that would end up being $19,200 that you’ll never get back. Remember: at the end of your lease, you don’t get to keep the car. You’re basically paying to rent a car indefinitely.
Moreover, suppose that you want to “buy out the lease.” In this case, you could be charged more than driving a new or even used car off the lot.
Leases Require High Insurance Premiums
Dealerships know that although leasing cars makes a lot of money, losing them in accidents is detrimental to their profit margins. This is why many leasing companies require you to carry comprehensive coverage in the event of an accident.
Be sure to check your leasing contract for “gap insurance” requirements. While paying for gap insurance can get expensive, this covers damages that your normal insurance policy wouldn’t. If you don’t have gap insurance and your damages exceed your policy limits, you could end up pay for the car’s repairs or replacement out of pocket.
You Could Get Charged for Going Over Your Mileage
When you sign a leasing contract, it will likely say that in one year, you can’t exceed a certain amount of miles. So, for instance, suppose you can’t go over 25,000 miles in a single year. The leasing company could charge you a fee for every mile you go over.
So, let’s say that you turned in your car at the end of your leasing period, and you drove 26,000. For that 1,000 miles, you could be charged $250 in addition to closing costs and other fees.
Leasing Companies Don’t Release Contract Easily
In the event that you can no longer afford your car and must change to a cheaper option, you may have to cancel your lease. When this happens, you could be charged hefty termination fees. To make up their profits, they may also charge you for seemingly small things that otherwise would have been waived.
Keep this in mind: when a dealership leases a car, they want you to keep it for as long as possible. This way, you keep making payments while ultimately never owning anything. If you break your contract early, you can rest assured that you will be “nickel and dimed” for it.
In Conclusion
Leasing a car makes sense for some people, but it’s not right for everyone. If you’re in a financial spot where leasing a car makes sense, then doing so could be the right decision for you.
However, if you’re looking to make a long-term investment in something that could build your credit, increase your equity, and bolster your financial security, then simply buying a car could meet your needs.
If you’re still wondering whether to lease a car, consider taking this quiz offered by Toyota.
