People are rightly skeptical of rentals. On lower-end products, rent-to-own companies are famously predatory, often leaving customers without anything to show for payments that exceed the purchase price of the rented item by three or four times. However, such shenanigans are rare to non-existent among reputable car dealers’ leasing departments.
In fact, leasing a car is fundamentally different than both other high-ticket rentals, like renting an apartment or home, and low-ticket rentals like renting a flat-screen television. This stems from the unique features of cars, how they’re used and how they create value for the consumer. Leasing is a long-established means of acquiring a vehicle that has many well-established benefits.
For many, a reliable car isn’t a luxury, it’s an absolute necessity
For better or worse, the United States is a society based upon personal transportation to an extent that no other advanced nation is. Public transportation in America’s urban centers is frequently both unreliable and dangerous. Outside of its major cities, America has no public transportation to speak of. Costs of taxis and even ride-sharing services such as Uber are often prohibitively expensive to be used as a means of transportation to and from work. This means one thing. Americans’ automobiles are often their lifeblood. With no car, many people would quickly find themselves unemployed.
And an unreliable car can be little better than no car at all. After around the third year of ownership and the 50,000-100,000 mile range, the rate of mechanical problems with used cars begins to skyrocket. The only truly reliable car is a new car. But the costs of buying a new car are completely prohibitive to many of those who need such a vehicle for their transportation to and from work. This is where leasing can really shine.
Leasing gets more Americans into brand new cars
One of the strongest arguments for leasing versus buying is that, for many Americans, leasing is the only way they will be able to acquire a new car and the safety, reliability and confidence that comes with it. For those falling on the lower end of the credit spectrum, even buying a bare-bones compact car for $15,000 may require huge up-front costs. These can easily run $5,000 or more. A lease for a similar vehicle will typically require just a few hundred dollars in drive-off costs. Few Americans making prevailing wages can afford $5,000 in cash outlays. But leasing gets them into a new car.
However, the up-front costs aren’t even where the real savings are. On a $15,000 vehicle, monthly payments on a car loan can easily run as high as $400. Lease payments, on the other hand, can be as low as $150, on a 36 month lease. Over the course of the lease, this can save the consumer high four-figures. If such savings seem nearly impossible, consider the effect of 15 percent interest being compounded annually. On a five-year auto loan, many consumers with bad credit will see a huge portion of their total monthly payments going just to interest.
Leasing means you don’t own the car
Many people will tell you that not owning the car is the main disadvantage of leasing. But when taking a closer look, it’s not at all clear that there is anything particularly advantageous about owning a rapidly depreciating car.
Most successful dealerships are large organizations, having 50-100 highly trained, talented individuals on staff who are experts in their assigned jobs. Not only do dealerships enjoy huge economies of scale, they have the expertise to maximize value on every sale. For most consumers, taking on the risks and huge additional costs of ownership for the chance to play amateur car dealer will not be worth it.