The upsides of leasing a vehicle can be absolutely huge. But many of the downsides, such as not actually owning the car, turn out to be not nearly as bad as some people would assume.
With a lease, you can typically get far more car for your money. In fact, for many buyers in today’s market of constantly rising auto prices, leasing may be the only way to ensure a high-quality, reliable car can be theirs.
Leases also allow the customer to always drive what is essentially a brand new car. This means the costs of repairs and the risks of break downs at life’s most inconvenient times will be almost zero. Even if the car breaks, leased vehicles are always under manufacturer warranty, due to their newness.
What Does Leasing a Car in Involve?
Leasing a car is fairly straightforward, but there are some things you should know. We break down the most important aspects of leasing. So read on.
Your Payments Reflect the Car’s Value.
The purchase price of the car you’re considering will largely determine the amount of monthly lease payments. Cars with lower sticker prices will have lower monthly lease payments.
Higher Residual Percent Saves You Money.
Residual percent is just a way for dealerships to measure depreciation. Cars with higher residual percents will have lower monthly lease payments, all else being equal.
Understand Your Set Miles.
This is one of the most important things to understand about the differences between leasing and buying. Most leases will have a maximum number of monthly miles that the lessor may drive. Once you go over that, a surcharge will be applied to your monthly lease payment. These costs can add up very quickly, so it’s extremely important to pay attention to your allotted monthly miles.
Expect a Disposition Fee.
A lease isn’t quite the same as a rental. One of the differences is that there will be a disposition fee. This is to cover the considerable costs to the dealership of preparing the car for resale, once the lease has expired. You can expect to pay a disposition fee of anywhere from $300 to $500.
Understand What Money Factor Means.
Money factor is the leasing business equivalent of annual percentage rate. The lower your money factor, the lower your monthly lease payments will be.
Is it Better to Lease or Buy a Car?
If you’ve made it this far, you’re serious about acquiring an automobile. Should you lease or should you buy? While there are both benefits and costs to each option, ultimately, only the consumer can decide which option works best for them. The most important thing is understanding all of the things that make leasing great and some of the things that could indicate buying might be a better option.
You Won’t Own the Car
By far, the biggest downside to leasing is that you won’t own the car. However, for many people, this is not nearly as big of a problem as it may seem. With leasing, you won’t have to worry about complicated loan agreements, making monthly payments, interest rates resetting, or any of the other myriad headaches associated with purchasing a car. You also won’t be able to sell the vehicle or use it as collateral.
But with leasing, you’re also protected from the largest risk car buyers face: bank repossession and total loss of equity in the car.
Leasing Cuts Down Up-Front Costs
The reduction in up-front costs can be astronomical. This is the strongest reason to choose leasing rather than buying. The drive-away costs when purchasing a $50,000 car can exceed $15,000. A lease on a similar vehicle may be as cheap as a few hundred dollars. Similarly, a consumer who needs the security and reliability that only a new car can offer may only be able to get a suitable vehicle through leasing, due to the steep up-front costs of buying.
With a lease, you’ll only need to cover the first month’s payment and a small security deposit.
No Need to Worry About Selling Car Leases
This is another huge and much underappreciated benefit to leasing. Car dealerships are multi-million dollar businesses employing tens or hundreds of highly trained, talented staff. Gone are the days of tweaking carbs and swapping out alternators in the driveway. Today’s cars are computer systems on wheels, readying a used car for sale often requires the expertise of technicians with years of training and experience.
All this adds up to one thing: Selling modern cars is a tough business. Most consumers will end up trading their vehicles in, effectively getting pennies on the dollar of the private party value. They should have just leased.
When you purchase a car, you own it. With leasing, you are free to walk away when the term of the lease is over. You typically will have an option to purchase the car but are never obligated to do so.