Most consumers searching for a new or lightly-used vehicle fund car purchases through car leases or purchases. Leasing and purchasing cars each have their own advantages and downfalls. Leasing has much more potential than downside, as we detail later on.
Leasing is essentially renting a vehicle, in that the lessee is borrowing the car from a dealership that states how long it can be borrowed. Purchasing a vehicle involves the exchange of money for ownership of that vehicle. Leasing does not come with many important responsibilities outside of driving the car and not wrecking that purchasing carries with it.
Without further ado, let’s explain why leases are generally more beneficial than purchases.
Leases Call for Less Money
Leases are paid on a monthly basis, which together pay for the value of the car used up during its lease term. For example, if a car costs $21,000 and is expected to depreciate $7,000 in value after 3 years of use, its return value is approximately $14,000. Lessees pay for this $7,000, plus interest.
Conversely, vehicular purchases pay for the entire vehicle at once, regardless of how long the new owner plans to use it regularly. For example, if we use the same car in the above example, the buyer would pay $21,000, no matter how little or often he used the car. Lessees pay for what they use, whereas car buyers pay for everything.
Another positive aspect of leasing is it only requires a small security deposit upon signing. Purchasing a car, on the other hand, usually requires large down payments that total multiple months’ worth of payments. Security deposits are sometimes not even the entire first months’ rent, a strong positive for lessees.
Lessees Pay Lower Sales Taxes than Car Buyers Do
Lessees are only taxed on the amount they submit for payment to dealerships. Car owners are tax based on the worth of the vehicle. Someone who buys an expensive, new vehicle is subject to hundreds, and likely thousands, of dollars in tax expense. Let’s consider that $21,000 car again; the lessee is required to pay tax on the first years’ payments plus interest, whereas a car owner would pay tax on the entire $21,000.
Lessees Spent Less Time and Fewer Resources on Maintenance
Car owners do retain ownership of their vehicle, along with the potentially lengthy list of responsibilities lessees are not subject to.
If a lessee’s vehicle needs repairs or maintenance, the lessee simply contacts the dealership and arranges a pickup time. The lessee is not subject to potentially expensive mechanic labor and parts, or responsible for bad mechanic work. The dealership pays for such repairs; not a penny is billed to the lessee.
Car owners must perform repairs themselves or hire a mechanic to implement repairs. Even worse, the owner must pay for them out of pocket. Lessees have the luxury of not being liable for repairs and maintenance if something goes wrong, unlike car owners.
Leased cars are required to have an active manufacturer warranty, if not a dealership warranty as well. Such warranties block the cost of lessees being required to pay out of pocket for repairs and maintenance.
While owners of vehicles sometimes do have warranties, owned vehicles are not always subject to them. Leased vehicles always have warranties because they are sold directly to consumers from dealerships.
Lessees Are not Subject to the Hassles of Selling a Used Car
Used car markets are flooded with old, outdated, and sometimes non-functional cars. Those who actively search for used cars try to strike deals with every owner. Many potential buyers refuse to pay fair market value for a used vehicle, with nearly every used car owner receiving at least one lowball offer. Often times, some listings will hear no inquires from potentially interested consumers. The combination of all these result in a stressful environment for car buyers looking to sell their cars.
Making sure a used vehicle has high resale value requires the owner to conduct regular upkeep and maintenance. This requires significant windows of time and amounts of money.
As detailed, lessees are subject to many positive aspects of not owning a car few others realize.