Instead of purchasing a brand new car, there is the possibility of leasing it instead. There really is no right or wrong answer here that is universal, so weighing the auto leasing pros and cons is up to you and what you need. With so many variables involved, these key points can help you decide which option works best for you right now.
The Pros of Auto Leasing
1. The payments every month are generally lower.
Because there isn’t the financing involved in an auto lease since no vehicle loan is generated, no interest payments need to be made every month. There is just the fee of using the vehicle over the leasing period. The end result is a lower overall monthly payment for most customers, allowing them to drive a better overall vehicle than if they were to purchase one.
2. There isn’t a loss of value.
Leasing eliminates the concerns of depreciation that car owners have as well. Once the lease expires, the vehicle is simply turned in or offered to the customer for sale. For the same monthly cost, the leased vehicle can be turned in for a newer model. This allows customers to always take advantage of the latest developments in vehicle technology without the worries of losing value in their investment.
3. Down payments are manageable.
When purchasing a vehicle, a down payment of 20-30% may be necessary to secure the loan needed. When leasing a vehicle, a down payment is simply made on the leasing contract instead. The down payment is typically 5-10% of the value of the vehicle instead. Although a couple thousand dollars might not seem like a lot, it can be for many households in the modern economy.
4. A credit score doesn’t always matter.
It is possible to lease a vehicle even though a lender might not approve financing. The terms and conditions of a lease are different than they are for traditional financing. Although lease payments are typically higher in poor credit situations, the end result is still often much better than paying on a high interest rate vehicle loan if one is awarded.
5. Regular maintenance fees might be covered.
Because the vehicle is being leased instead of owned, the vehicle’s ownership may provide the regular maintenance costs instead of you. This depends on the details of the contract, so it is important to read the details of the agreement thoroughly before signing.
The Cons of Auto Leasing
1. There will always be monthly payments.
When a vehicle is purchased, eventually the loan gets paid off. This results in vehicle ownership without any monthly payments whatsoever. When auto leasing, however, there will always be a monthly payment to make because there is no actual ownership involved in the transaction. For that reason, actual ownership is often viewed as an attractive option.
2. There are higher insurance premiums.
The issue with a vehicle lease is that the insurance coverage must protect the interests of the vehicle’s owner in addition to your own interests. Because of this, the value of the policy must be increased and this results in higher mandatory premiums. The difference can actually eliminate the payment differences between a monthly lease and a monthly loan.
3. There can be huge financial penalties at the end of the lease.
Most penalties involve the number of miles that are driven on a vehicle. The standard lease will include a specific amount of miles that can be driven every year. When the vehicle is turned in at the end of the contract, the number of miles that are over the allowed amount are charged a specific flat fee per mile. Even at just $0.25 per mile, a 5,000 mile overage would result in a $1,250 fee.
4. Excessive wear and tear can result in additional fees as well.
Children and pets can be extremely rough on a vehicle. They tend to see a leased vehicle as something that is personally owned and treat it as such. That means spills, small tears, and other potential damages that exceed the normal wear and tear provisions. When this occurs, additional fees may apply at the end of the lease that could wipe out any savings that the lease was able to provide.
5. You still pay for major repairs.
If you have a flat while driving, you’re still going to have to pay to have this fixed. Many major repairs are typically your responsibility even though you don’t own the car. Why? Because it was in your possession when the repair need was created.
The auto leasing pros and cons show that certain households may benefit, but some may want to look at ownership instead. Evaluate these pros and cons for your needs and you’ll be able to make an informed decision on how to proceed.