Leasing a car can be the optimal way for someone to acquire a high-quality, new car. Many of the reasons you may have heard about why buying is better turn out to be misleading, on closer inspection. The sizable inflation that has taken place over the last few decades in the prices of new cars can mean that the only way some buyers can access the confidence and reliability that can only come with driving a new care is through leasing it.
Leases also entail almost no maintenance costs. Even tune-ups and oil changes are often included in modern lease deals. The cars are new, so they almost never break down. And in the rare event they do, they’re always covered by manufacturer warranties.
What Does Leasing a Car in Involve?
There are a number of things you should know before leasing a car. It’s actually quite simple. Below, we list the key points unique to leasing and what they mean for you.
Your Payments Reflect the Car’s Value.
Simply put, pricier cars will have larger monthly lease payments. If you’re looking for a highly affordable monthly payment, go with a less expensive model.
Higher Residual Percent Saves You Money.
Cars are steeply depreciating assets. The residual percent measures how much of a car’s original value will be left when the lease expires. For cheaper monthly rates, go with a car with the highest possible residual percent.
Understand Your Set Miles.
This is one of the most important aspects of leasing. It is crucial that you understand exactly how many miles you are able to drive each month without incurring per-mile surcharges. While this is simply a matter of paying close attention to the lease agreement, failure to do so and going over the allotted miles can result in charges quickly racking up.
Expect a Disposition Fee.
There are a few subtle differences between leasing and renting. The disposition fee is one of them. It is costly to prepare a car for resale once the lease on it has expired. For this reason, a disposition fee of between $300 and $500 will be charged at the end of the lease term.
Understand What Money Factor Means.
Money factor is equivalent to annual percentage rate. It’s a way for dealerships to adjust the amount they’re paid on the lease, according to the credit risk that the lessor presents. The lowest money factor means the lowest rates.
Is it Better to Lease or Buy a Car?
Whether buying or leasing is best can, ultimately, only be answered by the consumer. The most important thing is to thoroughly understand all the aspects of both buying and leasing, so that a rational decision can be made with complete information.
You Won’t Own the Car
When the lease is over, you must return the car to the dealership. This means you can’t sell the car or use it as collateral. But it also means you have no risk of losing your equity in the car or having it repossessed.
Leasing Cuts Down Up-Front Costs
The single best selling point on going with a lease versus buying is the tremendous reduction in up-front costs associated with leasing. To drive a car off the lot with a bank loan, the purchaser may be required to put up tens of thousands in their own money. Many people simply can’t afford these kinds of costs.
By contrast, leasing often only entails a few hundred dollars in expenses. The drive-off costs for leases usually include prepayment of the first months fee, plus a small security deposit and some other small fees and taxes. This may amount to as little as a few hundred dollars, allowing those who would not be able to afford a new car through buying to acquire a reliable, new vehicle.
No Need to Worry About Selling Car Leases
The fact that leasing does not confer ownership is the reason most often cited that buying is better. But for many people, this simply isn’t true.
A few car buyers have extensive mechanical skills, sales ability and knowledge of finance, but the majority don’t. Dealerships spend millions of dollars per year on payroll in order to keep talented and expert staff available to serve their customers. The reason is simple. Selling cars is a hard business. Not having to do it is a far larger relief than most people realize. And the only other option is trading your old car in. Take it from us, the value you get on a trade in may be 50 percent or less of the nominal value they’re telling you.
When the lease is over, you must return the car to the dealership. You will usually have an option to buy, but are not obligated to do so.