When in the market for new vehicle consumers wonder whether it`s better to buy it or lease. In recent years leasing a car has become very popular mainly due to attractive lease terms offered by car dealers. When you can drive a vehicle off the dealer`s lot with approximately $199-$299-a month lease instead of $2,000-$25000 due at signing you can help yielding to this enticing deal. Latest Experian report revealed that 28.4% of financed cars in the fourth quarter of 2013 were leased.
Pay-as-you-go approach seems to have seeped into the auto market fueling strong car sales. Car leasing is more popular with young buyers who don`t care they won`t own the car at the end of the lease`s term and will end up paying several thousand dollars more compared to buying a car.
Industry experts explain this phenomenon by a major shift in people`s attitudes and mentality. The vehicle today is considered as a commodity which you can use and then return; it`s not being seen as a property anymore. Another reason why car leasing is popular is that it provides more cost-effective opportunity to drive the car you want avoiding financial consequences of high depreciation rates.
Among benefits of a car lease we should mention the following:
- Car owner can upgrade to a new model every few years
- As a rule, the vehicle remains under warranty which means its owner is covered in case of a major repair
- It comes with a lower monthly payment compared with buying the same car with loan terms
Lease benefits can seem attractive, but consumers should always re-examine its financial consequences especially if they have a host of competing for financial priorities like retirement, college tuition, house mortgage, etc. Car leasing seems to be the cheapest option when looking at cumulative out-of-pocket expenses. But when you thoroughly examine the tiny fact that you own nothing when the leasing period ends the calculus significantly changes.
Leasing can become а closed cycle to escape. Saving money while leasing you would not have collected sufficient for a down payment on your next vehicle and you won`t have a vehicle which you can trade-in. Being habituated to lower monthly payment customers may be not prepared to tolerate much higher monthly cost of purchasing a new car.
Opting for car leasing you will shun maintenance or repair costs (tire rotation and oil changes excluded) which new and used vehicle buyers have to pay. But in the meantime, you will be entitled to pay more for insurance.
With leasing, you can drive off in your new vehicle right away with minor financial disruption (it requires no or little money down and little monthly outlay) and enjoy its safety features and latest technological innovations.
Resuming the pitfalls of a lease we can have the following:
- Early termination of lease agreement can cost a fortune
- Many leased cars have tight mileage restrictions, and if the owner goes over the limits it can cost him thousands.
- Since the vehicle is not yours, you can`t make modifications or changes to it
Experts suggest some useful tips for consumers considering a car lease. Let`s look at them.
- Never agree to a lease with a term longer than 3 years. Beyond 36 months you`ll face out-of-pocket payments for car repair and additional cost of an extended warranty
- Don`t forget that advertised low lease payments do not cover fees and sales tax.
- Don`t be deluded by extremely low monthly payments, as they can require high drive-off fees.
- Check the mileage the lease allows (the industry norm is 12,000). Give a realistic assessment whether it`s enough for you. It`s much cheaper to purchase more miles beforehand than pay the fine at the end.
- Make sure gap insurance (it covers the difference between actual cost of the vehicle and coverage paid by the insurance company if it`s seriously damaged or totaled) is included in the contract.