Are you in the market for a vehicle and considering leasing instead of buying? Leases can seem attractive on the surface – no money down, no-cost trade-in for a newer model every couple years, low monthly payments, etc. However, oftentimes there are less obvious costs and terms associated with leases that can cost more in the long run than buying. Deciding whether or not leasing is a good option depends on your current financial situation, car needs and wants, and weighing the pros and cons of leasing a car. Let’s take a look.
The Pros of Leasing A Car
- Since the car is usually new or fairly new, you get to drive it during its most trouble-free years. They are often under the manufacturer’s warranty as well, which typically means free oil changes and other routine maintenance.
- You get to drive a newer, nicer, higher-priced vehicle for less than what you’d probably pay each month if you were to finance a purchase of the same vehicle.
- When you lease, you don’t have to worry about the car maintaining its value. Automobiles depreciate very quickly. For example, the moment you drive a new car off the lot, it instantly loses 10% of its value. After 5 years, the cumulative loss in value is around 60%.
- If you’re a business owner, a lease could mean significant tax advantages for you as a business expense or write-off/deduction.
- While there may be a termination fee for ending a lease early, it can still be less of a headache than trying to sell a car and haggling over the price. It could also save you a considerable amount of time.
The Cons of Leasing A Car
- Remember, when you lease a car, you’re borrowing, so you’ll have to return it in excellent condition. Any damage beyond normal wear and tear is your responsibility. If you have little kids or pets and they do a number on the car, expect to pay excess wear-and-tear charges.
- Leasing usually ends up costing more money in the end than an equivalent loan, even if it’s only due to the fact that you are driving a rapidly depreciating asset.
- If you’re always leasing, monthly payments could go on forever, as opposed to buying a vehicle and driving it until the wheels fall off. You have a loan for a few years, but after it’s paid, all you’ll have is car insurance, gas, and any required maintenance or repairs. Long-term, it is always cheaper to buy a car and keep it as long as you possibly can instead of leasing.
- Leasing terms often have mileage limits, typically ranging from 12,000 to 15,000 miles per year. Any excess can result in 10 cents per mile to as high as 50 cents per mile. This can add up to hundreds of dollars more very quickly if you are not careful.
- Even though leasing can be a good option if you’re tight on cash, the credit score requirements can be a bit more strict than buying a car. Most lease programs require a credit score of 700 to 850. For buying, there is a wider range of loans available.
The Bottom Line
A large factor in the decision comes down to lifestyle. For instance, if you’re living somewhere temporarily for a job and driving less than 12,000 miles in a year, leasing can provide a low cost, comfortable, and reliable solution. If you’re looking for a long-term, low-cost option, leasing probably isn’t the best choice. In fact, buying a new car is likely not the best option for you either. Instead, you should look for a used vehicle that is in good condition, has held its value, is reliable, and gets good fuel economy.
Using a loan to purchase a vehicle, may also be an option depending on the interest rate. To qualify for a low-interest rate, lenders will look at your credit score. And a low-interest rate means you’re freeing up cash flow to pursue other financial goals!
If you’d like help comparing your options or looking for other ways to save money, schedule a free consultation with us today.