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When it comes to obtaining a new car, you have two primary options available to you: buying and leasing.
Most people are familiar with both options at a high-level but don’t necessarily understand the nuances of each.
Depending on your wants, preferences, and financial situation, either leasing or buying, could make the most sense for you.
Here’s what you need to know about the benefits and drawbacks of leasing to decide if it’s right for you.
5 Pros of Leasing a Car
Many people choose to lease cars. Here are five reasons why:
1. Lower Monthly Payments
Lease payments are typically lower than the payments you’d make if you were to buy an identical car.
Many people prefer this because it means they can either:
- Drive a more expensive car for the same monthly payment
- Spend less monthly on a car payment
You can find a lease for under $100 per month, or over $1000 per month depending on your budget.
2. Get a New Car Every 3 Years
One of the most attractive features of leasing is that you get a brand new vehicle every few years.
New cars are exciting and provide you with the prestige of always driving something more modern. It is also great if you change your mind frequently and don’t want to be locked down in ownership.
Not only that, but you’ll also get the latest safety and technology features. Driving is the most dangerous thing most of us do daily, so the peace of mind that comes with driving a car with superior safety features can be well worth it.
3. Minimal Down Payment
With a lease, you’ll usually put much less down than if you were to purchase the vehicle. If you don’t have money stashed away for a down payment, but need are car, leasing is a great option.
If you have a strong credit score, you may not have to put any money down at all. You may be able to rely solely on your monthly payments to fund your lease or qualify for other valuable lease deals or rebates, saving you even more money upfront.
4. Lower Upfront Costs
In addition to saving on your down payment and monthly lease payments, the other upfront costs associated with purchasing a vehicle will also be more economical. In general, you’ll only pay sales tax on the number of your monthly payments, not on the total value of the vehicle.
Depending on the tax rate in your area, this can amount to huge savings.
You also won’t be paying interest like you would with a car loan. Interest can add a lot to your vehicle cost, so it pays to avoid it. All of your payments will be going directly towards your lease, not being paid to a bank in the form of interest.
5. Easy Trade-Ins
When you reach the end of the lease, the trade-in process is relatively straightforward. You’ll be able to return the car to the dealership with minimal hassle. After a vehicle inspection and some paperwork, you’ll be on your way.
There is no need to haggle or negotiate a trade-in price with the dealership or try to find a buyer on your own. Trading in or selling a car can be frustrating and time-consuming. Remember, time equals money, so factor that into your decision.
5 Cons of Leasing a Car
Despite all the positives, leasing is not without its drawbacks.
1. Leasing Is More Expensive Over The Long Run
When you lease a car, you’ll only have it for a few years, and then you’ll need to get another lease. You’ll eventually reach a point where the amount you’ve paid to lease cars will exceed what you would have paid to own a car.
Cars depreciate the most on average during the first two to three years of its life. When you lease a vehicle, you’re making payments during this period of high depreciation.
When you lease, you, unfortunately, never stop making payments. However, if you buy a car, your monthly payments end when your debt gets repaid, giving you freedom from monthly payments until you decide to purchase something else.
2. You Don’t Own the Car
Because the leased vehicle is not truly yours, you’ll have to take exemplary care of it for the duration of your lease term. You also won’t be able to make any permanent modifications to personalize or upgrade it. You’ll have to return the car at lease-end, and it will need to be as close to its original condition as possible.
Not owning the car has financial drawbacks as well. When you are ready for your next vehicle, you won’t be able to cash in on your lease vehicle’s residual value. Whereas this resale value could go towards a new purchase if you owned the car, with a lease, you’ll be starting from scratch.
3. Added Insurance Costs
Most leasing companies will require you to have full auto insurance coverage throughout your entire lease term. This can result in much higher costs during that period, as you won’t be able to pick and choose your coverage. Your insurance company may also charge more for customers who lease rather than own.
You may also need to have GAP insurance. GAP insurance protects you if your car gets totaled during your lease term. If your leased vehicle gets completely destroyed, you’ll likely be upside-down on your payments, meaning that you owe more than the car is worth as scrap or in an insurance payout.
GAP insurance will cover any shortfall, so you don’t have to pay for it yourself.
4. Penalties for Wear and Tear
When you return your vehicle at the end of the lease, the dealership will want to be able to sell it for a profitable price as a used car. Because of this, they’ll want it to be in excellent condition, both inside and out. If there is any damage to the vehicle, whether your fault or not, you may have to pay additional fees to cover the repairs and lower resale value.
Your lease contract will also include a mileage limit. If you drive more than this specified number of miles, you may be subject to mileage penalties. These excess mileage fees can be significant, so it is in your best interest to stay within the mileage stipulated in your contract.
5. Stuck in a Lease Contract
While it is easy to trade in your leased vehicle at the end of your lease term, you’ll have difficulty getting out of your contract early if you need to. This could happen if you run into financial trouble or experience other lifestyle changes. You may find yourself trapped in a contract you no longer want or can reasonably afford.
Rather than facing hefty termination fees, you’ll likely want to find someone else to take over your lease. However, this is much more complex than simply selling a vehicle. You’ll need to go through the proper process to ensure you are officially released from your obligation.
Should You Lease or Finance Your New Car?
Now that you are aware of the pros and cons of leasing cars, it’s time to evaluate which option is best. There is no simple answer to this question. You’ll need to weigh each of the pros and cons in terms of your own unique financial situation and lifestyle.
For example, you may be on a tight budget at the moment but expect an increase in pay in the near future. This could make it easier for you to handle the higher monthly payments of car buying.
On the other hand, money might not be as big of an issue for you, and you would instead prefer to have a newer car, making leasing a more appealing option.
You’ll also need to think about the lease contract requirements. If you worry that it will be difficult to stay within the mileage limits, leasing may not be right for you. If your driving habits fit in just fine with the contract, you’ll likely have no trouble with the leasing requirements.
At the end of the day, choosing whether to lease or buy is a personal decision that you must make for yourself. Try to prioritize which factors are most important to you. This will help guide you in making your final decision.