“To lease, or not to lease” is a decision that has been plaguing consumers who are considering purchasing a new vehicle for quite some time. Years ago, conventional wisdom suggested that it was always more cost effective to purchase a new car outright than to lease one. While it is true that there are many advantages to purchasing a new car or truck, in today’s market it is vital to weigh the pros and cons of leasing as well. The following facts may be helpful to consumers who want to make an informed financial choice about their next automobile:
Pros of Leasing
Depending on the buyer’s financial situation, leasing a car might be a good idea. For example, people who need to purchase a new vehicle sometimes have difficulty coming up with the required down payment. It is possible to find a lease deal that would forgo this large lump sum, but buyers would still be responsible for coming up with the cash needed for registration, tags, and the first month’s payment when they sign the lease.
Leasing a car may also result in a lower monthly payment. Because the consumer will not be paying interest on a loan and is only paying for the use of the vehicle, he or she often has a lease payment that is from 25% to 50% lower than a car payment might be for the same make and model. Leasing a car or truck also means that the consumer will always be driving a vehicle that not only meets all of the safety standards but is new enough that it requires little in maintenance expenses.
Taxes on a leased vehicle may also be easier to handle because they are usually rolled into the monthly lease payment. Also, taxes are adjusted so that the consumer only pays for the percentage of the vehicle that is used during the leasing period. Another great benefit of leasing is that the better companies provide insurance that pays off the leased car or truck when an accident results in a complete loss, and the insurance coverage is not sufficient.
Another aspect of leasing that works to the consumer’s benefit is that the depreciation of the vehicle falls mostly to the dealer. When people buy a new car, it loses value from the time they drive it off the lot, and if they choose to resale in a short period of time, they will actually lose money. Leasing a car protects the consumer from this quick decline in value.
Cons to Leasing
Some drivers who lease cars end up being locked into a deal for a vehicle that they do not enjoy driving. Some leases require the driver to pay a termination fee when they choose to get out of their lease earlier than they originally expected. Other charges that can sometimes surprise drivers are the fees imposed when they exceed the mileage allotment designated in their leasing agreement. This makes leasing impractical for drivers who exceed 50,000 miles a year because they could pay as much as twenty cents a miles for any travel that exceeds their contractually agreed upon mileage allotment.
Leasing a car also means that the driver is rarely building any equity in the vehicle. When the period of the lease agreement is completed, the consumer may find that the market value of the vehicle has risen so that it exceeds the original price stated in the lease agreement, but this is rarely the case. If it does happen, the consumer will have some equity that can be used toward buying or leasing a new car. Most leases also include a clause that requires the customer to be responsible for excessive damage to the leased car or truck. The little dents and dings that happen in a parking lot may end up costing more than expected at the end of a leasing period.
Clearly, leasing is an option that makes sense for people who do not have a large sum of money saved up to buy a vehicle or to those who like to drive a new vehicle every few years. However, for drivers who spend a lot of time on the road, it is usually financially better to purchase rather than lease.
Guest author Melanie Lewis writes for a website that provides tips on financing a car as well as information on lease options.