In the past, I’ve been a staunch proponent against leasing a car. But, I’ve started to soften in my old age. I can start to see both sides of the argument. And, I recently took the plunge and leased a car instead of buying one. There may be a few reasons to lease a new car though.
Leasing a car doesn’t give you ownership in the car. It’s sort of like long-term renting. At the end of the lease, you have to return the car. But, most car dealerships will let you purchase the car at the end of your lease instead if you want to do so.
The Dangers of Leasing a Car
There are definitely some dangers to leasing a car. You have to remember – the car isn’t yours! You have to return it in pretty good condition when your lease is up.
The car dealership typically only allows you to drive 12,000 to 15,000 miles per year. I will owe a fee for each mile that I go over 36,000 when I turn in my car at the end of the lease.
I also have to turn the car back in pretty good condition. Every car dealership allows for some normal wear and tear. But, they each have a differing opinion on exactly what is fair and normal wear and tear on a car.
These are two factors that I’m most concerned about when I was considering leasing a car. I’m pretty rough on cars. I’ve been babying my new car a little bit more than I normally would because I know that it’s not mine, and I have to turn it back in in three years.
Why I Chose to Lease a New Car Instead of Buying One
While leasing a car isn’t for everyone, it can be a great choice for some if done for the right reasons. Here are just a few of the reasons that I decided to lease a new car instead of buying it outright.
Tired of Maintenance Headaches
For the past four years, I’ve had two different beater cars that I bought for cash. These were the first cars that I had ever had the title for and no car loan.
But, as with many older cars, I ended up paying thousands of dollars in repair costs over the course of the past four years. I think that it averaged out to be $100 or more in repair costs each month.
Of course, there were many months where I didn’t have any repairs that were needed. But, there were several times where the repair bill would have broke my bank account if it wasn’t for my fully-funded emergency fund.
I got so sick and tired of having to take my 2000 Jeep Wrangler and then 2005 Volvo to the repair shop. If a mechanic knows you by name when you walk in the door, then you’ve been there too much!
So, I really wanted a new car after being getting sick and tired of trips to the repair shop. Leasing a new car was a great option, just like buying one. A new car provided me with a great warranty and the statistical likelihood that I wouldn’t see a mechanic except for oil changes and regular preventative scheduled maintenance.
Keep Changing My Mind Every Three Years
Another reason that I like the idea of leasing a car is that I can change my mind. I’m not locked into a car for years at a time. Of course, you could always sell a car that you purchase. But, that’s a hassle.
A lease gives you the option of trading in your car at the end of your term or buying it outright. My lease also lets me sell my car back to the dealership at the one and two year marks for a set price. There’s no haggling and no headaches when selling the car back in this way.
Wanted Flexibility
I have flexibility when leasing a car. I can purchase the car, trade it in for a new car at the same dealership, sell the car and pay off the residual value, or simply turn it in.
I like the idea that I can refinance the car also if I wanted to keep it at the end of the term of my lease. I would simply pay cash or apply for a car loan like I was purchasing a used car. I’ve refinanced a car from one back to another before. And, it is very simple to do.
Not Sure Where My Job Would Take Me
My day job moves me around the country and even overseas some times every two or three years. Having a three-year lease gives me that flexibility of not having to potentially sell a car or drag it around with me if I didn’t want to.
It would be a pain to take a car overseas with me, and leasing gives me the option of turning the car in. Leasing is a huge help if I’m not sure where I will be living in a few years.
Wanted a Lower Monthly Payment
One of the biggest selling features of leasing a car is the low monthly payment of a lease. After putting a down payment of $1,500, my monthly payments worked out to be $250.
Most financial experts say that buying a car based solely on a low monthly payment isn’t the best idea. And, that’s true. Your monthly payment is only one aspect of your purchase or lease price for a new car.
Things like your down payment, interest rate, length of loan terms, and trade in also play a role in your monthly price. One of the best illustrations that I’ve heard is that the price of a car is like a balloon. If you don’t like the monthly payment, the dealership squeezes the balloon in other areas (interest rate, down payment, terms, trade in value, etc.) in order to get you the monthly rate that you want.
This can work against you like other aspects of the deal change. Maybe you don’t like the number of months that you will have to finance the car. Or, maybe the interest rate will change as a result, which makes the total purchase price ultimately higher in the end.
Leasing a car doesn’t give you ownership in the car. In the end, everyone must make the choice between purchasing and leasing a car that makes sense for you.
Finance experts are famous for saying that personal finances are just that – personal. Everyone’s choice will be different. And, the same is true when you lease a new car or buy it.
What about you? Do you like to lease a new car? Do you think I’ve committed the equivalent to a personal finance sin? Let me hear about it in the comment section below!
The question is whether you can afford the car without compromising other more important financial goals. If the answer to that question is “yes” then all the factors you considered come into play. On the one hand, you could sit down and do a math problem: If I had bought this car for $X, and put $1500 down, how much would I have to pay each month for the term of the lease, had I bought the car. If I decided to sell the car at the end of that term, what would I get for it? Etc. I suspect when you did that math, you’d find out that it would cost you less in the long run to buy the car, even if you decided to sell it at the end of that number of years. However, that’s when the other factors you discussed come into play and, if you can afford it, you get to decide what they are worth. On the other hand, if you can’t pay for this car and still meet other finanical goals, then this was a poor decision.
I completely disagree. I don’t think you need to lease a car and then end up spending more money if you put more than the allotted mileage on it or get a ding in the door, etc. You can purchase a newer car that’s still under warranty that holds its’ value such as a Lexus, BMW, etc and the maintenance is usually free for the first few years. As the warranty runs out, you can sell it for another slightly used vehicle and that tends to keep costs down. I’m not certain of this (the finance stuff is your area of expertise, certainly not mine :), but I think car insurance may be a bit lower if you own as opposed to leasing a vehicle.
What if 2 yrs lease vehicle has a small scrape cause in a parking lot by an unknown. Cost to fix @ dealership is $500; elsewhere is $340 ( excluding costs of renting from AVIS for a few days. Basically, a wash to me.
Am I in for a sneak charge here ? Planning on just returning as is and eating the small difference (more convienient).
6700 miles on what yr lease, no other wear and tear, maintenance done @ dealership (but for existing scrape; zero body damage per dealership).
Is there some unforseen and undisclosed risk to me?