For millions of Americans, leasing a car will prove to be a far better decision than buying. This is because leasing, dollar for dollar, will get you into a much higher quality vehicle than buying with a bank loan. It can also open up the possibility of driving a brand new car, with the added safety and reliability that comes with it, to people who would otherwise be forced to buy a significantly used car.
This can make a ton of sense for those who need reliable transportation for family, school or work. The maintenance costs on a lease are usually close to nil. Even when the cars break, which is rarely, given their newness, they’re almost always covered under manufacturer warranties.
What Does Leasing a Car in Involve?
Leasing a car is straightforward and usually much simpler than buying a car on loan. However, there are still some things you need to understand. We’ve put together a list of the most important aspects of leasing.
Your Payments Reflect the Car’s Value.
Generally speaking, more expensive models will have higher monthly lease payments. If you’re looking for the cheapest possible monthly rates, go with a less expensive model.
Higher Residual Percent Saves You Money.
The residual percent is a measurement of how much of the car’s value the dealership or leasing company expect the car to retain by the end of the lease period. The higher the residual percent, the lower your monthly payment will be.
Understand Your Set Miles.
Nearly all leases come with a maximum number of miles that may be driven per month. These are usually well within reasonable limits, allowing for normal car usage. However, it’s extremely important that you know what that number is. Failure to stay within the imposed mileage cap will result in per-mile surcharges, which can quickly add up.
Expect a Disposition Fee.
Another quirk unique to leasing is the disposition fee. This is a payment of between $300 and $500 that the lessee will be required to pay upon the termination of the lease. The money is used to help the dealership prepare the vehicle for resale.
Understand What Money Factor Means.
The money factor is the lease-business counterpart to APR. It’s a measure of risk that the lessee presents to the lessor. The lower the money factor, the lower the monthly payment.
Is it Better to Lease or Buy a Car?
Whether or not it’s best to lease or buy will be dependent on your individual circumstances and needs. Only you can effectively answer that question. What’s most important is that you fully understand all the pluses and minuses of both leasing and owning. An informed constomer will ultimately be a happy consumer.
You Won’t Own the Car
The number one reason you’ll hear people tell you not to lease is that you won’t own the car. What they won’t mention is that ownership carries some big risks. If you pay cash, you’ll have to insure the car or carry the risk of losing your investment in the event of an accident. If you take a loan, you’ll be required to make monthly payments on-time, every time.
The single largest risk of purchasing a car with a bank loan is that you’ll default. Modern loans are made by huge conglomerates like BoA and Wells Fargo. They don’t negotiate. One missed payment can easily result in the loss of the vehicle and all owner equity.
Leasing Cuts Down Up-Front Costs
The strongest reason to lease is that you get far more bang for your buck. In addition to up-front costs being reduced by thousands of dollars or more, the monthly payment on a lease for a given car will typically be considerably less than the payment for that car’s purchase with a bank loan.
No Need to Worry About Selling Car Leases
A modern dealership is typically staffed by 50-100 employees, many of whom have years of experience, study and high-end certifications. Dealerships employ talented sales staff, finance experts, and technicians who are capable of keeping modern cars, which are essentially rolling computer systems, in tip-top condition. Simply put, this is what it takes to sell modern vehicles effectively.
Many people looking to buy make the mistake of assuming that just because they own a car, they’ll be able to get maximum value from a buyer when they sell it. But this doesn’t take into account the hidden risks of selling. It might go well. But when it doesn’t, you could lose big, in time, money and sanity.
When the lease is over, you are free to walk. Selling a car yourself can easily take tens or hundreds of hours of your time and thousands of dollars of your money. With a lease, you don’t have to worry about any of that.