Is Leasing a Car a Good Option for Me?

Bob, Vice President, Lending

Leasing is a popular car buying option for many shoppers. In fact, leasing accounted for 20 percent of new car sales this year according to Edmunds.com. Often car shoppers go to the dealership with the intent to purchase a car, but switch to the leasing option to get a car they otherwise couldn’t afford.

 

Leasing can make sense for some buyers; however, it can cause problems for many other consumers. Remember, you don’t own the car. You make payments for the term of the lease, typically 2-4 years and at the end of that period, you walk away with nothing and may even be required to pay a termination fee of several hundred dollars. Worse yet, if you turn in the car and it has some body damage or your mileage is over your annual allotment, you’ll be required to pay hefty fees to the dealer. Here’s how to decide if a lease is right for you.

 

You should NOT lease if:

 

You’re keeping the car. If you will definitely keep the vehicle more than three years, buying is a better option for you.

 

You drive too much. Leases typically limit you to 10,000-12,000 miles per year. You can negotiate more miles on your lease; however you will pay a premium. When you return the car after the term of your lease ends, you will have to pay a penalty for any miles driven over the annual limit, so it’s essential that you stay within the mileage guidelines.

 

The term is too long. You shouldn’t get into a lease with a term longer than three or four years. After that time, you will probably need to spend some extra money maintaining a car for the dealer. Additionally, you may be required to pay for an extended warranty if the term exceeds the normal warranty period.

 

You want to pay off your car. If you look forward to the day you’ll be car payment free, a lease is not a good option for you. At the end of your lease, you will not own the car and you will not have any “equity” with which to make a down payment on a new car. You may be forced into another lease. Even if you keep the car, you’ll have to refinance.

 

You should consider a lease if:

 

You change cars often. If you’re a driver who buys a new car every two years, a short term lease could benefit you.

 

You can secure a significantly lower payment. Leasing can be a cheaper option if you’re able to get significantly lower monthly payments compared to buying. That’s because payments are calculated on depreciation costs – the difference between the price of the car and the value of the car after the lease ends. Cars that hold their resale value tend to facilitate a lower monthly payment.

 

You use your car exclusively for business. Your business may be able to deduct or write-off leasing expenses, depending on where you live and your business. Please consult your tax advisor regarding your situation.

 

You drive very few miles. You may be able to negotiate a low-mileage lease at a lower cost. However, be realistic, it’s significantly cheaper to pay for those miles up front than the penalty fees at the close of your term.

 

If you decide to lease, here are some important facts and questions:

 

Fees. Taxes and fees are NOT included in advertised lease payments. Ask if you will be required to pay drive off or up-front fees, a deposit at closing, a disposition fee at the end of the lease or excessive wear and tear costs. None of those expenses will go towards the cost of the car or lease payment. Factor in those costs over the term of the lease.

 

Qualifications. Changes in the auto marketplace have limited which consumers will be able to lease. Dealerships are often inundated with returned lease cars, with few options to resell them. For that reason, affordable leases may be limited to very high credit scores.

 

Limitations. Before you sign, check the mileage limitations, all fees and charges, the “factored” interest rate, the length of the lease, and the balloon payment if you decide to “buy out” the lease, or keep the car.

 

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