For many people, leasing a car will be the option that makes the most sense. With leasing, it is possible to leverage your limited funds available for making monthly payments to get a much nicer car than you would be able to with purchasing. For some people, leasing will be the only way that they can get the reliability and confidence that can only come from driving a new car.
Nearly all car leases are on brand new models. This means the chance of breakdowns or mechanical problems is close to zero. Even if they occur, leased vehicles are always under manufacturer warranty, due to how new they are.
What Does Leasing a Car in Involve?
There are a number of things you should know about leasing a car. Below, we break down the most important elements of leasing a vehicle, so that you can make an informed decision about buying versus leasing.
Your Payments Reflect the Car’s Value.
More expensive cars will have higher lease payments. This is intuitive enough. However, you will typically be getting a far nicer car for any given monthly payment than if you were to buy.
Higher Residual Percent Saves You Money.
Cars depreciate. The residual percent is just a way that dealerships and leasing companies can measure the amount that they expect a car to depreciate over the course of the lease term. You want to go for the highest residual percent, that is, cars that depreciate least will tend to have lower monthly payments than those that don’t hold their value as well.
Understand Your Set Miles.
This is the one real potential drawback to leasing. But it is a non-issue if you thoroughly understand it. Leases have a maximum number of miles that can be driven per month. After they are exceeded, you will incur surcharges for each additional mile driven. It is very important that you understand the maximum allotted miles that may be driven in any month.
Expect a Disposition Fee.
One of the differences between renting and leasing a car is that, with leasing, there will be a disposition fee. This is typically between $300 and $500. It’s not optional, so be aware of it.
Understand What Money Factor Means.
Money factor is the leasing business version of annual percentage rate. Lower money factors will result in lower monthly payments, and are usually tied to the consumer’s credit rating.
Is it Better to Lease or Buy a Car?
If you’ve read this far, you’re serious about acquiring a solid, new car. Ultimately, only the buyer can decide if buying or leasing is right for them. The most important thing is to fully understand the risks, rewards and costs of both buying and leasing. The more you understand about both options, the better your decision will be for you.
You Won’t Own the Car
In exchange for an extreme reduction in up-front costs on top of lower monthly payments, with leasing, you won’t hold title to the car. But this also means that you won’t bear any risk of defaulting and having a bank repossess the vehicle, leaving your equity wiped out.
Leasing Cuts Down Up-Front Costs
The reductions in up-front costs for leasing versus buying can be absolutely huge. Depending on your credit, driving a $50,000 car off the lot with a bank loan purchase may require as much as $15,000 in up-front costs. With a lease, the drive-away costs may be as little as a few hundred dollars for the same car.
Up-front costs of leasing a vehicle usually include the first month’s rent, a small security deposit, similar to what is seen with apartment rentals, and a few other small fees and taxes. For most people who need a new car quickly, this is the aspect of leasing that can make it easily become the superior choice.
No Need to Worry About Selling Car Leases
Many people who choose to buy rather than lease justify this decision by convincing themselves that the ability to sell the car after using it always justifies the added costs, upkeep and hassles associated with buying. These buyers are almost always severely underestimating how much work and expertise goes into effectively selling cars.
Dealerships employ many highly trained and talented people on their staff whose collective job is to do just one thing, sell cars. Selling cars and knowing how to get what the car’s worth out of it can easily take 50 hours of time and costs thousands in direct investments into getting the vehicle prepared for sale. This is a job best left to the pros. With leasing, you don’t have to worry about playing car dealer.
Finally, leasing does not confer ownership. At the end of the lease, there is usually an option to buy, but not an obligation.