Thinking About Leasing a Car? Some Things to Consider First!

leasing a car

The conversation about leasing versus buying has been ongoing for quite some time. Data shows that close to 30% of new car transactions are leases.

So what’s the advantage, if any, of leasing a vehicle versus buying one?

Everyone’s financial reality is different, hence we cannot be prescriptive, but what we can do is name all of the issues you should consider before you opt for leasing a vehicle.

Lower Monthly Payments

In many cases, leasing a vehicle will give you a lower monthly payment than buying the same vehicle. Those who are struggling with living within their means may opt to lease a vehicle simply to offset the monthly payments by a hundred to a few hundred dollars a month. Keep in mind, however, that at the end of your lease, you will have nothing to show for the money that you spent.

Higher Insurance

Even though you may enjoy lower monthly payments on a leased vehicle, you will most likely pay a higher insurance premium, which will wipe out some of the savings you were counting on. Apart from regular coverage, if you lease your vehicle you’ll have to pay what’s called a lease gap rider on your policy to cover the difference between the lease amount and the value of the car, in case something were to happen.

Hefty Penalties

There are two options for leasing a car. A short-term lease will usually be between 6-12 months. Long-term leases will run 24 months or longer. If you decide you no longer want to lease, you’ll be not only liable for paying the remainder of the lease, but also additional penalty fees.

Mileage Limits

Usually, there is a 10,000 or 15,000 mileage limit per year on leased vehicles, so those who commute to work or take frequent long distance trips should pay special attention. Penalties of up to $0.25 per mile will apply for anything over the mileage limit. If you are thinking about leasing a car, consider negotiating appropriate mileage for your needs to avoid paying additional penalties.

Maintenance

Whether you lease or purchase a vehicle, you’ll have to maintain it, meaning you’ll have to perform oil changes, tire rotations, etc.;  so there is no maintenance advantage of having a leased vehicle. Please read your agreement carefully to see what maintenance and repairs are covered by the lease and read the fine print about “additional wear and tear” you will be liable for!

Best Case Scenario

There is no question that the best long-term strategy is to purchase a vehicle that fits your needs and your current budget, and to keep that vehicle for years after the payments are done.  This way you can completely eliminate payments, lower your insurance cost, avoid any additional fees, and have time to save cash for your next car purchase.

So don’t get caught up in the glamour of leasing a vehicle that you wouldn’t otherwise be able to afford to purchase. Think about the long-term impact on your pocketbook of paying thousands of dollars on an asset that, at the end of the day, is basically a “rental.”

Image by Carleasingmadesimpletm