There are a few options available to you when thinking of getting a car, one of which is leasing. Leasing has become a mainstream alternative to buying. However, renting a car is quite complicated and isn’t always a good idea all the time.
But is leasing a car a waste of money? Instead of taking out an expensive auto loan or saving up to buy a new or second-hand car, it does make sense to lease one. Leasing, however, also has its disadvantages, and learning about how it works can help you make a better decision.
Understanding How Car Leasing Works
Car leasing is similar to renting an apartment or a house. When you lease, you don’t own the car. You are paying to rent it for a specific length of time and number of miles. In a rental situation, you will need to make monthly payments to the dealer for driving the car.
Just like with loans, you will need a good credit history for a car lease. You will have complete control over your choice of vehicle model, make, and other specifications. The total cost you pay is calculated based on the value of the car, the estimated value at the end of the lease, and other factors. You will also have to make an initial deposit.
At the end of the lease, the vehicle is checked when returned before your payment ceases. You may have the option to purchase the car.
Pros and Cons of Personal Car Leasing
Why Consider Leasing?
Leasing a car has several benefits that make it an enticing option. Here are some of the upsides of a car lease.
- Lower monthly repayment: It’s cheaper to get a car on lease tan to buy with a bank loan. Little or no upfront payment is required, and you also don’t have to pay upfront tax. This way, you can get a new car of your choice without the hurdles of down payments.
- Fewer repairs: leased cars are usually brand new, so you don’t have to worry about substantial wage bills. For instance, if you take a three years lease, there will be minimal maintenance within those years since the car is still new.
- Owning a new car: new cars come with comfort, updated technology, and various other features. Unlike buying where your choices may be restricted based on down payments and other factors, leasing provides far more extensive options of cars to choose from.
- No loan approval needed: it’s challenging to obtain a mobile loan if you don’t have stellar credit, and there are also the outrageous interest rates attached. Leasing companies have less strict requirements because they still own the vehicle and can take it back if you default.
- Not Being Upside Down: When you lease a car, you only pay for the depreciation in vehicle equity that’s expected in the period of usage. For instance, if you lease a car for three years, you will only pay for the lease period, and it’s not possible to owe more than the car’s current worth.
The Downside of Leasing
Despite its numerous benefits, leasing has several disadvantages, including the following.
- It costs more: while it’s easier to acquire a car through a lease, it costs you more at the end if you are always driving.
- You may pay more in penalties: You may have to pay penalties if you exceed a specific mileage limit specified in your lease agreement. The cost can range from 10 to 50 percent for every extra mile.
- There may also be fees if you terminate the lease early, which are usually equal to the reaming period of the lease.
- Unrepaired Damages Fee: if you don’t maintain the car well, you may have to pay for any damages when you return the vehicle.
- There are limitations in terms of customization as you are required to bring back the car almost as it left the showroom.
Is leasing a waste of money?
No. There are situations when leasing makes more sense, including the following:
- When You Want A Brand-New Car: Leasing allows you to drive a brand-new car. You will enjoy the benefits of a new vehicle, like minimal repairs and new technologies.
- When you don’t want to own a car: Leasing comes handy to avoid the hassles related to owning a car. You don’t have to worry about car value or reselling your used car.
- When you don’t have money for a down payment for an auto loan.
- When you are only in town for a short period, leasing is an excellent idea if you plan to stay in a place for a short period. If you are an employee or business person always moving from place to place, then you can lease a car for the period you will be in a location.
Is It Better to Lease or Buy a Car?
Mileage: For instance, if you drive a lot, then it will be best to buy a car than to lease one. Depending on the lease agreement, the maximum mileage might be 10,000, 15,000, or 20,000, and you will have to pay fees if you exceed them.
Credit and Down payments: if you have bad credit or don’t have a substantial down payment, then leasing is the choice to make, as the requirements are more lenient.
How long you plan on keeping the car. This has been discussed above. But it makes sense to lease a car if you expect short term use.
Purpose of the car: Leasing a vehicle for business may, in some way, reduce your tax liability. The financing cost and depreciation of a leased car are deductible from your tax payments. Interest in auto loans is, however, not deductible.
Leasing isn’t a waste of money. As we have seen above, there are times when leasing makes more sense than buying. It’s up to you to use your discretion and make the right choice.