Leasing a car has many strong advantages over buying. The drive-away costs of leasing can be tens of thousands less than buying, enabling those who couldn’t afford a new car the chance to have one. All else being equal, you’ll be able to drive away in a much nicer car on lease than with a purchase.
Leased cars are also nearly always brand new. This means the likelihood of a leased car breaking down is close to zero. Should it break, leased vehicles are always covered by manufacturer warranty, all but eliminating maintenance costs.
What Does Leasing a Car in Involve?
There are some important things to consider before leasing a car. We break things down below.
Your Payments Reflect the Car’s Value.
Lease payments are generally tied to the sticker price of the car. Less expensive cars will result in lower lease payments.
Higher Residual Percent Saves You Money.
Residual percent is just a fancy way of saying “depreciation”. Cars that tend to hold their value better will have lower monthly lease payments, on average.
Understand Your Set Miles.
Almost all leases restrict the number of miles that the lessor may drive each month. It is, thus, extremely important to understand precisely how many miles you are permitted to drive per month. Going over your allowed miles will cause you to be charged extra. These costs can add up very quickly, making the lease less attractive.
Expect a Disposition Fee.
Leasing is similar to renting. However, due to the expense of readying a car for resale, most leases involve a dispensation fee of between $300 and $500. This fee is not optional, so you should be aware of it.
Understand What Money Factor Means.
Money factor is the leasing business’ version of APR. The lower the money factor, the lower your monthly payment rate will be.
Is it Better to Lease or Buy a Car?
There’s no quick-and-simple answer. Every buyer has different circumstances that could make leasing or buying more attractive. But it’s vitally important that all potential buyers or lessors understand the pluses and the pitfalls of both leasing and buying.
You Won’t Own the Car
When you lease, you don’t own the car. But this probably sounds worse than it is. Not owning the car can actually be a benefit. You don’t have to deal with the depreciation or ensuring monthly payments to a bank. You also don’t have to deal with the biggest risk of purchasing a car: repossession and a loss of your equity in the vehicle.
Leasing Cuts Down Up-Front Costs
If there’s one reason to lease, this is it. If you purchase a $50,000 car, your costs before driving off the lot may easily exceed $10,000. When you lease that same car, your costs could be as little as a few hundred bucks.
This means that customers who choose to lease can often get far more bang for their automotive buck by leasing rather than buying. Instead of a large down payment, with a lease, you’ll typically only have to cover the first month’s payment and a small security deposit similar to those seen with apartment rentals.
No Need to Worry About Selling Car Leases
Many people make the mistake of buying on the assumption that they’ll be able to make a lot of the purchase price back by selling the car when they’re done with it. For the majority of buyers, this turns out to be misleading.
Most car owners will trade them in to dealerships, taking huge effective hits to the price they are getting versus the private party value. There’s a reason dealerships employ armies of highly trained and talented experts. Selling cars is tricky business.
When you purchase a car, you technically own it. However, if you’ve financed it, the title is not clear. The bank could repossess it, should you default on your payments.
With a lease, you never own the car. But you also have no further obligations when the lease expires. You simply return the car and are free to walk away. Most leases allow for an option to buy the vehicle. But the lessor is under no obligation to purchase it at the end of the lease term.