Leasing a car is the right decision for many Americans. The benefits of leasing, which include dramatically lowered upfront costs as well as monthly payments, far outweigh the costs. What’s more, leasing can allow those with worse credit or little savings the ability to acquire a new, reliable and 100 percent safe car, where it may be impossible to do so with a bank loan.
Leases are almost always on brand new vehicles, and many include things such as oil changes and tune-ups for free. This amounts to much reduced maintenance costs. And because they’re new, leased vehicles are almost always under manufacturer warranty for the term of the lease.
What Does Leasing a Car in Involve?
Leasing a car is surprisingly simple. But there are a few things that must be understood. We’ve listed the most important things that you should know when leasing a car.
Your Payments Reflect the Car’s Value.
As a general rule, the car’s lease price will be determined by its sticker price. All else being equal, a more expensive car will have a higher monthly lease.
Higher Residual Percent Saves You Money.
The residual percent is a way that dealerships use to measure how much of the cars original value is expected to be retained through the end of the lease. The higher the residual percent, the lower your monthly payment will be.
Understand Your Set Miles.
All leases come with a maximum number of miles that can be driven each month, without incurring extra charges. It’s absolutely imperative that you closely read the lease agreement and pay particular attention to the maximum number of miles allowed. Failing to do so can quickly start generating extra costs.
Expect a Disposition Fee.
One of the quirks of auto leasing is that there will typically be a disposition fee upon the expiration of the lease. This fee is between $300 and $500 and helps the dealers in preparing the car for resale.
Understand What Money Factor Means.
The money factor is the leasing counterpart to APR for bank loans. It is a way for the dealership to assign a risk level to the lessee. You want as low a money factor as possible, in order to get the lowest monthly lease payment.
Is it Better to Lease or Buy a Car?
This question is best answered by the consumer. However, it is vitally important that the customer understands all aspects of both buying and leasing as well as the associated costs, risks and benefits of each. This will ensure an informed, rational decision can be made.
You Won’t Own the Car
One of the clearest drawbacks of leasing versus buying is that you won’t own the car. But this is not as large a problem as it may seem to some. The fact that leasing entails no down payment or ongoing ownership costs is a big plus. But perhaps the biggest upside to not owning your car is that there will be no risk of bank repossession, an event that can result in all of your equity in your vehicle being wiped out and you being left without a car.
It’s also worth remembering that, all things being equal, a lease will get you much more car for your money than purchasing will.
Leasing Cuts Down Up-Front Costs
The reduction in upfront costs achieved by leasing versus buying can be astronomical. A typical car bought using a bank loan can require upfront costs running into the tens of thousands of dollars. By contrast, a typical lease deal can get the customer driving off the lot for just a couple hundred bucks.
This reduction in costs is a huge factor in why leasing is such a phenomenal deal for millions of Americans, who would otherwise not be able to enjoy the safety, reliability and security of a brand new car.
No Need to Worry About Selling Car Leases
This is probably the most underappreciated aspect of leasing a car versus buying. Pound for pound, modern automobiles are many orders of magnitude more complex than a modern home. Yet almost no one in the United States would consider selling their home on their own. They hire a realtor.
It is easy to underestimate just how many hundreds of man-years of technical expertise, salesmanship experience and raw talent goes in to making a modern car dealership operate, but it’s a heck of a lot. The bottom line is that selling a car is tough business. It can be risky, costly and time consuming. It’s best left to the professionals.
With a lease, it is.
Another benefit of leasing is that when the lease is done, you get to walk away clean. You’ll have the option of purchasing the car. But you never have to.