Leasing is Good For Some But Not for Everyone
Car leasing works well for many people, but not for others. Which are you?
If you are considering car leasing, you should first determine if you are the type of driver for which leasing is best suited, and if your personal life fits well with leasing. Leasing works best for certain types of people and certain types of drivers. Are you that type of person and driver?
Is Car Leasing Right For You?
Although you may be attracted to the many benefits of new car leasing, you should consider the questions below before making a decision.
If you answer “yes” to any of the questions, it’s a good indicator that leasing may not be right for you. To do otherwise could cause you a great deal of unhappiness and unnecessary financial pain.
- Do you think you’ll want to end your lease early? Car lease contracts are purposely written to discourage, even prevent, early termination. To do so usually means you’ll pay termination charges and all remaining payments. Therefore, if you lease, you should have a healthy stable lifestyle and a good job situation to minimize the possibility of needing to terminate early. Wanting to end a lease early is the most common problem people have with leasing.
- Do you typically drive your cars more than 12,000 miles a year? New-car lease contracts limit the number of miles you can drive to 10,000-12,000 miles per year, typically. If you exceed your limit, you’re slapped with “excess mileage” charges at the end of the lease. Sometimes, extra miles — if you know you’ll be driving more — can be “bought” up front at the time you sign your lease at a lower per-mile cost.
- Do you think you’ll want to customize your car, make modifications, or repaint? A leased car doesn’t belong to you, it belongs to the leasing company. Therefore, you cannot make modifications and install custom equipment that alters the car. If you do, you’ll likely be charged for the cost of repairs to undo what you’ve done. Most people who lease don’t want to modify their cars.
- Do you mistreat your cars or fail to keep them in good condition? Leasing companies require that you return their car at the end of the lease with no more than “normal” wear-and-tear. Anything more and you’ll pay for the damages. You are responsible for insurance, upkeep, and regular maintenance just as with a purchased car. Some people mistakenly believe the leasing company is responsible. Most people who lease successfully maintain their cars just as if they owned them.
- Do you prefer “fad” cars or cars that frequently change style? Cars that are stylish and popular one year but not the next usually lose resale value quickly, which means their lease “residual” value is lower. Low residual value translates into higher monthly lease payments. This kind of car could easily have a higher monthly lease payment than a more expensive car with a better resale history.
- Are you emotionally attached to the idea of “owning” your vehicle? When you lease a new car, you have no ownership during your lease, unless you choose to buy at lease-end — which about a third of all lease customers do. Leasing is not all that different than buying with a loan, in which case the bank holds the title and you don’t own your car until the loan is paid off. When buying you build up some ownership equity (after depreciation) because of your higher monthly payments and, when leasing you don’t. Most people who enjoy leasing don’t let this bother them.
- Do you have a flawed credit rating? Because leases typically require a smaller down payment (or no down payment) and lower monthly payments, you generally must have a better credit rating than would be required for a loan because of the higher risk to the lease provider. If you have a history of making credit payments promptly and don’t have an excessive debt load, you’re going to be fine. Otherwise, you may have to pay a higher interest rate to lease or, worse, be refused. You should know your current credit score before visiting a dealer.
- Do you like paying off your loans and driving your cars until the wheels fall off? One of the benefits of leasing is that you can drive a brand new car every two or three years. However, you’ll always be making payments. To many people who lease, this is an acceptable trade-off considering the benefit of always having a new car that is always under warranty and has the latest features and safety equipment. If you prefer to make higher monthly payments for a few years and then be payment-free until you’re ready for a new car, then buying may be a better option for you than leasing.
- Do you have health or medical issues? If you have potential health issues or medical problems that may prevent you from completing a car lease, it’s better not to lease. Leasing is not like renting. You can’t simply return a leased car to the lease company if health problems, or even death, occurs. Leases are financial obligations, similar to loans and mortgages, and must be satisfied regardless of health issues. Death doesn’t cancel a car lease.
Summary
Leasing is best for people who have a stable financial situation, good health, and can expect to stick with a lease until the end. It’s also good for those who like to drive a new car every few years, who want low monthly payments, who drive a fairly predictable number of miles each year, who maintain their cars properly, and who have good credit. They like having the option to purchase their car at lease-end for a guaranteed price.
Leasing may not be the right answer for people who prefer to buy their cars and drive them for many more miles, and don’t mind the higher initial loan payments. They prefer paying off their cars, having some ownership value, and driving payment-free for years, even with the risk of out-of-warranty repair costs as their cars get older. They like lower insurance costs, having a choice about repairing damages, or not, and customizing their cars if they want.
Please read the next section, Types of Car Leases.