Buying a car can be overwhelming. You could get part of the way through the decision making process and stop dead in your tracks because there’s just too much information to juggle. Not only do you have to decide what type of car you want, but also how much you’re willing to pay for your new wheels. Then there’s the whole question of should you lease or should you buy. While there are benefits and drawbacks to both, this article explains the main points of getting a lease.
Benefits of Leasing a Car
Instead of paying for the full value of the car, as you would when purchasing one, you only have to pay for the expected depreciation when you get a lease. It’s common for the expected depreciation to be underestimated half of the time. If there’s unexpected depreciation, the responsibility is the lessor’s, not yours.
Leasing a vehicle usually costs less upfront than financing a vehicle. Normally, the upfront costs of leasing include payment for the first month, a security deposit (which will likely be refunded), fees, and taxes. Monthly payments on a lease tend to be less than monthly finance payments as well. If you want to drive an expensive car, lease payments are relative to the finance payments you’d make on a regularly priced car. Overall, leasing a vehicle tends to cost less than financing one thanks to depreciation and gap coverage. Sales tax is also lower on a leased car.
Often, lessors try to compete with one another by raising the residual value of a vehicle, which in turn lowers the depreciation you’d pay.
End of Contract Options
Once the lease is up and you pay the necessary costs, you can simply walk away from the vehicle without additional responsibilities. If you’d like to keep the car, you’ll have the option to buy it. You can also decide to trade it in or have a third party buy it. If you want to change your car regularly, there are trade-in advantages and warranty advantages.
Vehicles that are under lease for a maximum of 36 months are usually covered by the manufacturer’s warranty, so long as you don’t exceed the mileage restriction.
4 Drawbacks of Leasing a Vehicle
- Many leases include a clause that says the driver can’t move the vehicle out of state or out of the country (for example, if you live in New York, you can’t drive the car across the border into Canada). This can become a problem for active military members. If you do have to move or travel with the car, you have to notify the lessor first.
- Uniform calculations and disclosure of lease rates are not required by federal law – it would be far too complex to standardize a lease rate calculation. When you finance a vehicle, federal law requires both of these things, which means there’s an APR that you can rely on.
- When you lease a car, the vehicle comes with maintenance standards and requirements. If there’s excess wear and tear on the car, you could end up being charged when you turn it in. Families with children or pets should be careful when leasing a car.
- Most leases come with a mileage limit, which can be a problem for people who commute long distances to work or take a lot of road trips. It’s possible to request a higher mileage limit, but it won’t come free – normally, monthly payments will be higher if the mileage limit has to be raised. If you exceed the extended limits, you’ll be charged a fee when you return the car at the end of the lease.
written by: Briana Cameron
Image courtesy of Gualberto107, FreeDigitalPhotos.net