Should you lease a car or finance it? A number of people these days are looking to lease a car for their personal and professional use. Almost 26% of all new cars in the United States are leased.
Life is slowly heading back to normal after the gruelling COVID-19 pandemic and we’re seeing a lot of people in need of a vehicle for their daily safe and secure commute. Automakers have also worked hard during this lockdown period and launched new models to entice buyers. But these are not the only reasons car dealers are jumping up and down in joy and clicking their heels. Motoring Junction, in this article, digs deeper to find out the crux of the matter and the pros and cons of leasing a car in today’s day and age.
Why Car Leasing Is The New Trend
The data from IHS Automotive – an automobile-related industry and research firm – is clearly showing something really remarkable. The report states that cars as well as the trucks and SUVs which have been rolling down on the highways of the United States of America every day have recently reached an average age of 11.4 years old. This clearly shows that a huge number of people are driving a new set of wheels and they have been choosing to lease instead of purchasing the vehicle a lot more than before.
Shockingly, leasing accounts for more than 26% of the sale of new vehicles. People find leasing very appealing in more than one way. But you should also know that not everything is gold here – the pitfalls that will come together with a rental contract are something that every consumer must know before jumping at the chance of a brand new car. You must know that before you fall in love with a car and start signing up on the contract you must understand all that there is to know about leasing – including its pros and cons.
What Exactly Is “Leasing” A Car?
So what exactly does it mean for you to lease a car? A car lease will allow you to drive a new vehicle without paying up the total price of the car in cash or even taking out a loan. For you to lease a car, you only need to make a small down payment – usually less than 20% of the retail value of that vehicle that you would otherwise need to pay to purchase it. When the term or duration of the lease comes to an end, you are required to return the car.
This is a commonly used alternative that will be offered by most dealers around the country. The biggest selling point of the lease option is that after you’ve used the vehicle for a specified time – which is usually two to four years – the vehicle has to be returned to the leasing company. But you also have the option of purchasing the vehicle on the residual value that the vehicle has during that time. This attracts much more buyers than one would imagine. Let’s take a look at all the other advantages a lease option has, before we dig into the flaws of this system.
Pros Of Leasing
Lease Payments Cost Lower Than Loan Payments
Now we know you won’t believe this, but let’s take an example – Compare the monthly payment for a normal lease with the monthly payment for a typical loan. It wouldn’t take a lot of thinking or any knowledge about finance for you to figure out that you can get the same car for far less money by choosing a lease – because loan payments are tied with interest, which increases over time, drastically. What you have to look out for here is if you have some amount of money to put aside from your monthly budget – which can be put towards the car payment. Leasing is a clear winner here – you can get yourself a far better vehicle, even an expensive one if you want, when you lease a car rather than dishing out thousands of dollars in interest alone. For example, you could drive a Maseratti by leasing it or an Audi by Financing it.
Get Yourself A New Car Every Year
In the case of leasing a car, you usually sign a contract period of 3 years. This will mean that you can get a new car every 36 months and you can upgrade yourself to the highest safety standards, with infotainment technologies and an extended warranty for the new car. In some cases, you might even be offered free scheduled maintenance – Regular oil changes and the tire rotations which will not incur any additional expenses apart from the monthly lease amount. And if in case you don’t like the car, it wouldn’t be much longer until you get a new one. That is a really simple solution that attracts many buyers.
No Problems At The End Of The Contract
When the lease comes to an end all you have to do is return the car, and if the car is in good shape and meets all the requirements in the contract, then all you have to do is hand over the keys and walk away. Now what this means is that you don’t have to negotiate or stand around for days of paperwork, which can be a hassle while trying to sell your used car. This is by far the easiest way to get rid of an older vehicle.
Similar to the advantages that we mentioned earlier, you might want to know that leasing will require a lot less money. In some cases, even the upfront charges are very less. This will allow you to drive home with a new car without even having to break your 401K and spend all your savings. In most regions in the States, the sea stacks are put down on monthly payment rather than on the total price of the vehicle.
Note: If you have leased a car for business only then you can claim a tax deduction on that as well.
With all that being said about leasing a vehicle, don’t jump in and find a good vehicle, without knowing about the dark side of the act.
Cons Of Leasing
Ownership Of The Car
You must always keep in mind that leasing is very much similar to renting. What we mean by this is that you don’t own the car, so you cannot do whatever you want with it. You must always have certain things in mind when you are leasing a car, chief of which is that you must maintain it in an excellent condition. You cannot personalize it or even modify it permanently.
There is also an annual mileage restriction, crossing which your contract with the dealership will be violated. So you can’t drive any further than the distance mentioned in the contract. If you feel like you can’t be abiding by these rules then leasing is not for you.
Note: While you are leasing a car you must also remember that you can never change the spare parts used by the vehicle, and that if you damage the vehicle, you will have to pay for the whole vehicle.
Penalties For Wear And Tear
Just imagine that you go ahead and release the car and then, later on, you end up causing damage to it. Now when you bring back the car to the dealership you will have to pay all the financial penalties which are associated with the excess mileage as well as the condition of the car.
There is always an option for you to buy the car at the end of the lease but then you will be stuck with the polymath in the vehicle and with the high miles that come along with it. you will also have to with a trustworthy dealer and sell it on your own in the future if you want to.
There is a lot of depreciation in the automobile industry – based on lease payments that come between the price of the car and the projected value at the end of the contract of the lease. Both will be combined with a lease rate which has to be paid by the company. But it doesn’t just stop there. Going further, an acquisition fee will be added to it at the start of the lease, there might even be a disposition fee at the end of the contract which will cost a few thousand dollars extra, which you will never be able to handle because you don’t own the car.
Then we have to talk about the gap insurance which will be recommended for you as it covers the difference between your traditional insurance company which will check to determine the total worth of the car and the amount which has to be paid on the lease contracts. But that can take forever to complete, and that is why it’s a hassle.
If you purchase a car, you can sell it whenever you want – be it for immediate cash purposes, or if you are no longer able to afford the payments – and the company will take care of the rest. But if you lease a car then all you have at your disposal is luck, because you can’t get rid of the lease payments once the contract has been signed. Unless you buy a car instead of leasing one, you will be stuck with endless payments for the foreseeable future. Now, these payments which will be combined with the additional cost will make leasing more expensive than buying in the long run.
Leasing is a good technique, allowing more people to own a vehicle of their dreams rather than just purchasing it in cash. Yes you can take a loan, but the repayment is just too expensive because of the interest. But after repayment of loan the car is all yours. You can keep driving it for years or sell it in the used car market.
With leased car, you just give back the car to the dealer after lease term expires. You don’t have to deal with having to find a buyer for your car if you want to sell.
Considering both the merits and demerits is important for any kind of financial decision, but it is up to the buyer, in the end, to pick a method that he/she is comfortable with. Leasing is great if you want to keep your payments low and want a new set of wheels every now and then.