The Pros and Cons of Leasing
Drivers wondering how to lease a car might think a lease is more affordable than purchasing a car. And in fact, that’s somewhat true – leases typically have lower monthly payments than auto loans. However, leasing a car more closely resembles renting than buying. With mileage limits, fees and charges, the cost can add up quickly. Before getting a car lease, drivers should consider the pros and cons of leasing versus buying a car.
Car leasing allows you to drive out of the dealership with a new car that you don’t have to commit to forever. Additionally, leasing comes with benefits like routine maintenance. In other words, leasing a car minimizes the cost associated with having and maintaining a car. However, because you do not keep the car at the end of the lease period, you are not building equity. When you purchase a car, you can sell it to recoup some money. With a lease, there is no option to sell. Therefore, leasing is only an appropriate option if you can accept that you will not get anything back from the agreement. The sections below describe how to lease a car, the benefits and drawbacks of leasing and how to get out of a lease contract.
How to Lease a Car
If you’re wondering how to lease a car, you can begin by contacting your local dealerships. Ask about their inventory and pricing, and let them know you’re shopping around. Tell them how long you want to lease, your maximum monthly budget for a lease and what your anticipated mileage is. Then decide what kind of vehicle you want, whether it is a four-door sedan or a minivan.
Request car leasing quotes from multiple dealerships and compare them. Look at factors such as the drive-off fee, which is essentially a downpayment, the final monthly payment and what services are included. For example, if your car’s engine malfunctions, will you be issued a courtesy vehicle while your lease undergoes repairs? Ask about hidden costs such as sales fees or registration fees. With these numbers, determine what contract has the best bang for its buck.
Once you find a deal you like, you can sign a car leasing contract with the dealership. Bring proof of insurance and any necessary payment fees to the meeting. Alternatively, you may be able to arrange to have the car delivered to you, depending on your dealership. Once you receive your lease and sign the contract, you’re free to drive. However, you should make note of the car’s mileage when you receive the vehicle, and keep track of it as you drive.
Upsides of Leasing a Car
Whether you lease a used car or a new car, leasing comes with some definite upsides. For example, a standard feature of lease agreements is that the dealer will cover all routine maintenance. Oil changes, tire rotations and inspections are all paid for by the lease provider, which means you save on maintenance expenses. Additionally, you can guarantee that you’re driving a reliable car, or that you will have access to a replacement car if an issue is found with your car. Because you have not taken ownership of the vehicle, you do not have all the responsibilities associated with ownership.
With car leasing, drivers are not putting debt in their credit history. Instead, they are committing to a contract where they will pay a regular amount. Monthly payments are also typically much lower than financing a lease. Therefore, the option appeals to people who want to minimize monthly expenses and protect their finances. The financing behind car leasing is complicated, but essentially, drivers pay the difference between a vehicle’s purchase price and residual value. The residual value of a car is the value of the vehicle at the end of the lease period. The result is that you drive a vehicle with a quickly depreciating value, but you minimize your monthly payments to cover it.
Finally, car leasing often allows drivers to pick cars that would typically be out of their price range. For example, a driver financing a purchase for a high-end Lexus vehicle might pay $900 a month. However, leasing that same vehicle might cost under $500 a month. Many dealerships offer lease deals that include attractive and popular cars for affordable prices. This makes driving modern vehicles with new technology far more accessible. Therefore, leasing is a good option for drivers who want access to a newer car without purchasing the vehicle.
Downsides of Leasing a Car
Drivers considering leasing versus buying a car should also take into consideration the downsides of leasing. Because you do not purchase the car, you get no financial benefits from the contract. When you buy a car, you build equity in the vehicle. Even though it depreciates quickly, it still holds some value for a long time — much longer than a typical lease. That means you can get a return on your investment by selling the vehicle. When you lease a car, you essentially sign a contract to spend money for a set period of time. At the end of the contract, you get nothing back. Therefore, if you are thinking about preserving wealth and making investments, car leasing would not be the right choice.
Additionally, whether you lease a used car or a new car, you will have restrictions on what you can do with the vehicle. Leases virtually always have a required mileage cap that restricts your movement. That means you may not be able to drive more than 10 or 12,000 miles a year without paying additional fees. Those fees add up — if you typically rack up more than 12,000 miles in a year, expect to pay significantly for the added mileage.
It can be difficult to lease a car with bad credit. Many dealerships will outright refuse to give you a lease if you have poor credit. Dealerships that do consider you will often add expensive drive-off fees, essentially a downpayment, as protection. On top of that, you may face higher insurance rates for a leased vehicle, particularly a newer leased vehicle. Therefore, if you have poor financing, there may be numerous hidden costs associated with leasing a car.
Furthermore, when comparing leasing versus buying a car, the lifespan of the car must be considered. Leasing a car means you are guaranteed to have a functioning car during the period of the lease, which is valuable. You do not have that if you purchase a used car. However, it additionally means you have a limited period contract of two to five years.
If you purchase a car, you can continue to use it as long as it functions. Some cars can last for more than two decades. However, with a lease, you must return the car at the end of the contract. When you return the car, you will once again have no transportation of your own. You may have the option of a lease buyout, purchasing the car at the end of your lease. However, the price may not be ideal and you may be asked to pay additional purchase fees.
Getting Out of a Car Lease
Drivers no longer interested maintaining their contract have several options for getting out of a car lease. They have the option to return the car and cancel the contract outright. However, cancelling the contract can come with severe penalties, making it an expensive choice.
Alternatively, more and more dealerships are allowing leasees to transfer their contracts to someone else. A lease assumption is when someone assumes the remainder of someone else’s lease contract. The dealership still gets paid for the rest of the contract, but not by the original lease holder. Many websites exist to advertise short-term leases and facilitate lease assumptions. Dealerships are amenable to this option, so even if a leasee’s contract does not mention a lease transfer option, drivers should inquire.
You can also perform a lease buyout early to end the contract and retain ownership of the vehicle outright. However, double check the purchase price and ask about any additional fees. It may be more expensive than buying a car independently. Determine if the value of buying the vehicle is worth breaking the contract. Take into account the lack of maintenance coverage, and the benefit of no mileage fee or time limits for using the car, before making a decision.