Leasing a car is the right decision for millions of Americans. Car prices have soared over the last two decades and are less affordable than ever. Leasing provides a way for many people who would otherwise not be able to acquire a new car to access the reliability and confidence that comes with driving a brand new car.
Leasing can also get you a ton more bang for your automotive buck. And it reduces maintenance costs to almost nothing. Many modern leases include things like tune-ups and even oil changes for free. Leased vehicles almost never break down, due to their newness. When they do, they’re covered 100 percent by manufacturer warranty.
What Does Leasing a Car in Involve?
Leasing a car is straightforward. Still, there are a few things you should know. We have broken down the most important aspects of leasing, so that you can make the most informed choice.
Your Payments Reflect the Car’s Value.
As a rule, the car’s sticker price will largely determine how much your lease payments are. Cheaper cars will have lower monthly payments. Payments on a leased car will, on average, be considerably lower than if the same car were bought with a bank loan.
Higher Residual Percent Saves You Money.
Residual percent is the way that dealerships measure how much value they expect the car to retain by the time the lease term expires. Higher residual percents mean the car will hold more of its value. This, in turn, will result in a lower monthly payment, all else being equal.
Understand Your Set Miles.
It is very important to understand the set miles on your lease. This is the maximum number of miles that may be driven in any one month. It is imperative that you be aware of the set miles on the lease. Failure to adhere to the set miles can quickly start driving up surcharges.
Expect a Disposition Fee.
One of the small differences between renting and leasing is that leasing often involves a disposition fee. This is true with car leases. Expect to pay between $300 and $500 when the lease expires. This fee helps dealerships prepare the car for resale.
Understand What Money Factor Means.
Money factor is the leasing business version of APR. It is a way for dealerships and leasing companies to set appropriate rates based on credit risk of the lessor. You want to obtain the lowest money factor possible. This will ensure your rate is as low as it can be.
Is it Better to Lease or Buy a Car?
Leasing and buying are two very different option. There are many strongly compelling reasons to lease. But leasing isn’t a magic bullet, and it won’t be the best decision for every buyer.
The best thing you can do to decide whether leasing or buying is the right option for you is to go into your car search as well-informed as possible. With all the relevant information, you will be able to make a rational and informed decision.
You Won’t Own the Car
One of the most obvious drawbacks of leasing is that you won’t own the car. However, this is less of a detriment than most people realize.
Not owning the car means that you won’t be able to build equity in it or use it as collateral. But with a rapidly depreciating asset like a car, this isn’t always a bad thing.
But not owning also means you won’t take on the considerable risks of ownership. The largest of these is the risk that you may default on your bank loan, wiping out all of your equity and having the vehicle repossessed by the bank.
Leasing Cuts Down Up-Front Costs
Perhaps the strongest selling point for leasing is the absolutely gigantic reductions in up-front costs that are possible versus buying. The drive-off costs when purchasing a new car can easily run into the tens of thousands of dollars. Most people, especially the working class, who often are most in need of a reliable car, simply cannot afford those kinds of outlays.
With leasing, you can drive away in a brand new car, for what oftentimes amounts to just a few hundred dollars in up-front costs. This is a sweet deal for anyone who needs the reliability and confidence of a new car for family or work.
No Need to Worry About Selling Car Leases
One of the most underappreciated aspects of leasing is that you won’t need to hassle with selling your car. Selling cars can take tens of hours and thousands in costs. Most people with decent jobs will actually net more money by leasing and working than by owning and selling their car.
When the lease is done, you get to walk away. It’s as simple as that. You often have the option to buy but are under no obligation to do so.