Is Leasing a Car a Good Idea?
Millions of Americans sign auto leases every year, essentially renting a new or used vehicle for a few years or longer. Leasing a car certainly has pros and cons, and for some drivers, it does make sense. Before you sign a long-term vehicle lease, make sure you know exactly what the agreement entails and how car lease rates impact your finances.
How Does Leasing a Car Work?
Leasing a car allows drivers to drive a new or used vehicle for a predetermined length of time or mileage. Drivers make a monthly payment during their lease period, and then it’s decision time. At the end of the lease, most dealerships offer customers the option to purchase the vehicle at its established market price, take the vehicle back and try to sell it or lease it again.
The Most Common Auto Lease Lengths
Most automotive lease periods are 24, 36, or 48 months. Some dealers may lease used or previously leased vehicles for shorter periods but leases shorter than two years are uncommon. Most leases also have additional restrictions, notably mileage penalties. Based on the agreement, drivers may pay additional fees if they drive more than a certain number of miles per year, which adds to the overall cost of the lease. Many lease agreements cap annual mileage between 10,000 and 15,000 miles per year; if you drive more than that, there are better options than leasing.
Related: Buying New or Used: What’s the Better Deal?
Should I Lease or Buy a Car?
Deciding how to finance a lease or car loan depends on your situation and long-term goals. Remember that car leash rates are influenced by manufacturer and dealer incentives, plus your income and credit score. Ask a financial expert for advice if you’re unsure what you can afford. If you do find an affordable car lease, here are a few more things to consider.
The Benefits of Leasing a Vehicle
There are some undeniable pros to leasing a car or truck, depending on your financial situation and long-term car ownership goals.
Monthly payments. In most cases, monthly payments on lease vehicles are lower than monthly loan payments on a similar vehicle purchased outright.
Upfront costs. Downpayments on leased vehicles are usually much lower than similarly priced new vehicles.
Upgrade. Drivers who always want to drive newer cars can upgrade to a new vehicle every few years without worrying about buying, selling, or trading in a car they own.
Avoid long-term loans. Longer-term car loans (think 72 months or more) put buyers at risk of getting “upside down” on the loan. This means the loan's outstanding balance (and any interest) is more than the car's worth.
The Cons of Leasing a Car
For most drivers, leasing a car is almost always more expensive than purchasing a new or used car outright.
Depreciation. Leasing a car means you’re making payments on a vehicle when it loses most of its value. New cars lose as much as 35% of their value in the first two years of ownership.
Fees and penalties. Most lease agreements include fees and penalties based on damage, mileage, and missed maintenance. These expenses increase the overall costs of leasing a car, mitigating any price advantage over buying a vehicle.
Termination. Getting out of a lease can be very difficult - and expensive - if you no longer need the vehicle or can’t make payments. Failure to meet monthly payments will also negatively impact your credit score.
Customization. Adding stickers, non-approved parts, or customization can result in heavy penalties, making it difficult to customize your car.
You are paying to drive, not to own. Of course, the most obvious drawback of leasing a car is that you don’t own it. We like to think of leasing as paying to drive, not paying to own.
The Verdict: Buy a Used Car
For most families, every dollar matters. In the long run, the best choice is to find a used car you can afford to purchase with low monthly payments and keep driving for years after paying it off. We can help you inspect a used car before you buy it and recommend reliable makes and models to help start your search. See what Garfield Auto has helped keep northern Michigan families on the move for over fifty years. Schedule an appointment with our technicians today!