For millions of American who might not otherwise be able to afford a new car, leasing can be a fantastic option. Leases, in general, will get you far more car per dollar spent, allowing you the safety and reliability of a new car, on a used car budget.
Leasing also means that your maintenance costs will typically be next to nothing. Many modern leasing programs throw in free tune-ups as well as other maintenance costs. Nearly all leased vehicles are new enough that they are covered under manufacturer warranty.
What Does Leasing a Car in Involve?
Leasing a car is not particularly complicated, but there are some things you should know. Below, we list the most important things you should know when leasing a car and how they differ from buying.
Your Payments Reflect the Car’s Value.
All things being equal, a car with a higher sticker price will have higher monthly lease payments than one with a lower sticker price. If you want the lowest possible payments, go with a less expensive model.
Higher Residual Percent Saves You Money.
The residual percent is the portion of the car’s original value that the lessor expects to be retained. The higher the residual value, the lower the monthly payment will be.
Understand Your Set Miles.
One of the most important things to pay attention to when going with a lease is the maximum allotted miles that may be driven each month. Usually, this number is quite high, easily accommodating normal usage. However, going on road trips or having a month with unusually frequent driving can put you over your allotted miles. If this happens, surcharges can start racking up quickly. So it’s imperative that you know your set miles and stick below them.
Expect a Disposition Fee.
One feature of leasing that is somewhat unique is the disposition fee. This is a charge of between $300 and $500 that you’ll be required to pay when the lease expires. It helps with the costs of preparing the vehicle for resale.
Is it Better to Lease or Buy a Car?
Whether leasing or buying is ultimately the best arrangement can only be answered by you. The most important thing is to fully understand the risks, rewards and costs involved in both leasing and buying. That way you can come to a fully informed, rational decision.
You Won’t Own the Car
One of the most salient disadvantages in leasing a car is that you won’t own it. However, this is not as large a problem as it may at first seem.
Ownership of a vehicle, especially when bought using a bank loan, has some major risks that leasing doesn’t. The largest risk is that the car may be repossessed, in the event of a default. Gone are the days of your local banker, who you know by name, holding your car loan. Most loans, even those originated by smaller banks, are sold to large institutions. These guys don’t negotiate.
If you miss even a single payment, you may be at risk of losing all of the equity in your car and being left without a vehicle. With leasing, this isn’t a problem.
Leasing Cuts Down Up-Front Costs
One of the strongest selling points for leasing versus buying is the astronomical reduction in up-front costs. Buying a car, even on loan, often entails spending thousands or more in drive-off costs. By comparison, you can often drive off the lot in a leased vehicle with as little as a couple hundred dollars in up-front costs and fees.
Leases generally only require that the first month be prepaid. There may be a small security deposit and some other nominal fees and taxes. But typically, you’re looking at just a few hundred dollars to get into a brand new car.
No Need to Worry About Selling Car Leases
Many who decide to buy a vehicle based on the idea that they’ll be able to recoup much of the initial purchase price by selling are severely underestimating the risk, difficulty and amount of work involved in selling cars in today’s tough market. While it is possible for a private party seller to get a good price on their vehicle, it will usually take 50 or more hours to do so. For someone with a decent job, this usually means they would have been far better off working those hours doing what they’re good at instead of trying to play car dealer.
But the real problems lie with what happens when things don’t go as planned. Fraud, lawsuits, cars needing costly repairs prior to selling and many other things can make selling your own car a serious mistake.
On the contrary, leases allow you to walk away clean when the term is up. With a lease, there are no hassles when it comes time to get another car.