When confronted with the possibility of a new car, lots of individuals consider leasing as an alternative. Although there are lots of benefits to leasing rather than purchasing a car, there are also many traps and pitfalls. This report covers all of the pros and cons of leasing a vehicle, in addition to covering other things to know about and watch out for before you sign a new car lease agreement.
Is Leasing a New Car Right for You?
Many advertisements play on television which touts how simple and cheap it is to rent a vehicle. Ads always make renting a vehicle apparently very attractive to someone looking at new cars. What are the pros and cons of leasing an automobile and does it make financial sense?
This guide will cover a few of the advantages and disadvantages of leasing a car, and a couple of things to know and watch out for before you buy.
- Low or no down payment: In leasing jargon, this is known as the cap-cost reduction, and ideally, should be little or nothing.
- It is possible to drive a more expensive car than you can afford to buy: The up-front expenses and monthly payment on a lease are generally less than a similar car payment so that you can maximize your ability to drive a nicer, more upscale car than you can afford to buy.
- You drive an old car: Leases are almost always on a new vehicle, and ideally, should terminate in two to three years, so you’re always in a ‘new’ car.
- Lower monthly payments: The payment is based only on the part of the vehicle that you use, as opposed to the whole price, so payments will be reduced as long as you get a shorter term lease agreement.
- Reduced maintenance costs: Since the vehicle is brand new, your car will be covered by the manufacturer’s warranty. This should equate to little or no upkeep costs. Gas-and-go baby!
- Lower sales tax: Laws differ from state to state, but you should be paying tax only on the monthly payment, rather than on the whole purchase price of the automobile.
- Fewer problems at the end of the lease: At the end of the lease, you return the vehicle in good shape and walk away or lease a new one. No hassles trying to sell your vehicle or negotiate a trade-in.
- As time passes, leasing is usually more expensive: Due to higher finance charges and the trend that it is never paid off, so finally at some point, leased cars are costlier.
- Lease payments never end: Part of the value of purchasing a vehicle is that eventually it’s paid off, whereas with leasing cars, the payments never finish and the finance charges continue to collect.
- A limited number of miles: Leases include rather low mileage caps, usually 12,000 to 15,000 annual miles, with stiff penalties for exceeding them. You will need to comprehend your actual mileage requirements and do the math before you rent.
- You have to maintain the vehicle in good shape: Excess wear and tear penalties could be levied at the end of the lease, and are somewhat subjective. In case you have children or pets, leasing an automobile may not be perfect for you. Also, plan on getting a costly detail and maybe minor body work is done when you return your leased car.
- Early termination is pricey: Leasing companies intend on your paying the lease until it terminates. If you have to get out early, expect to pay enough in penalties and fees that you might as well have kept it through the conclusion of the contract.
- You can not do some customization to the automobile: Any permanent changes you may want to create to personalize your car are out of the question. Bear in mind, you don’t have ownership of the vehicle. Leasing is much like renting in that regard.
- Higher insurance premiums: Check with your insurance provider before leasing a vehicle. Your premiums may be much higher than they would if you bought the same vehicle. Additionally, you will always need to keep new automobile coverage.
- Added Costs: Lots of hidden and extra fees can get tacked on a lease, similar to fees on purchase arrangements, but you want to factor them before deciding if leasing is the ideal option.
Also Read: City Car Buyers Guide
What Else You Should Know Before Leasing a Car
When it comes to getting a new car, you may be considering leasing instead of purchasing. Buying a vehicle permits you to build equity and you will have the vehicle outright, whereas, leasing is more like renting. You may continue to make payments as long as you’ve got the car without ever possessing it.
Though there are advantages and disadvantages to both options like I mentioned above, leasing could be a great option in certain situations. Here are a few additional things you should remember when weighing the choice of purchasing versus leasing an automobile:
- Cap price: The capitalization price is basically the purchase price of the car. When you lease a vehicle, the dealer is selling that car to a leasing firm. The total amount of the sale is the capitalized cost or cap price. Just as in purchasing a car, you need this to be as low as possible.
- Cap-cost reduction or down payment: Anything that lessens the cap-cost is known as the cap-cost reduction. The down payment is the most frequent, but may also refer to a trade-in, a dealer incentive, or a lien. Lowering the cap-cost is great, but paying out of pocket for a down payment retains no benefit to you over the life span of the lease.
- Residual value: What the value of the car is anticipated to be at the end of the lease term is called the residual value, and you need this to be as large as possible since the difference between the cap-cost minus cap-cost reduction is exactly what your lease payments are based on.
- Money value or interest rate: When you’re leasing a vehicle, you’re financing money just as though you were buying a car, it’s called the money factor and is more difficult to comprehend. To calculate the equivalent in an interest rate to determine whether you’re getting a fantastic bargain, multiply the money factor times 2,400.
- Lease term: The rental duration denotes the amount of the lease. You do not want this to be more than the car warranty as that would negate one of those benefits.
More things to look out for:
- Wear and tear provisions: You want to understand precisely what constitutes excessive wear and tear since it is another place you can be penalized at the end of the lease. Nobody expects you to come back with a brand new car at the end of the agreement, but they do expect it to be in pretty good shape. You will need to know what that means and what the related penalties are for failing to meet those criteria.
- Mileage allowance: What’s the allowed mileage annually and what’s the cost of exceeding that limit? Just take a good honest look at your driving habits and mileage history. Can you meet the mileage limitations without needing to worry about excessive fees in the end?
- Insurance requirements: How much insurance are you required to carry on the leased vehicle? Bear in mind, you don’t own this vehicle. The leasing company will expect you to be insured in case of an accident in spite of the fact you will still ultimately be accountable. Check with your own insurance agent and learn what this will cost before you lease a car.
- Tires and other maintenance fees: Are there any tire maintenance fees, or penalties on windshield maintenance and other wear and tear items not covered by regular maintenance? What do these charges cost and what do they cover? Are they negotiable?
- Open or closed end lease: Although less common, some leases require that you buy the vehicle for the residual value at the end of the lease. Ensure that you are able to walk away if you don’t fall in love with the vehicle.
- Other fees: Many different fees could be levied, such as acquisition and disposition fees, security deposit, gap insurance, and other drive-off fees you could get hit on a rental. Understand the whole cost of driving off the lot with your new vehicle and factor that in to decide if leasing is perfect for you.
Lots of men and women believe leasing a car is the only thing to do. You get a new car every few years to get a low payment and do not have the hassle of purchasing or selling. But just like deciding whether to buy or rent a house or any additional purchase, you want to comprehend the complete cost of ownership before signing a lease arrangement.