Stop me if you’ve heard any of these.
“I don’t lease cars because you never own them.”
“My buddy told me I shouldn’t lease a car. He says leasing is more expensive.”
“Lease a car? Never! I don’t want to get hit with all of those charges when the lease is done.”
When I sold cars a few years ago, I heard these reasons for not leasing a new or used vehicle. Depending on your situation, leasing might be a smart option for you.
If you have never done a car lease, there are some things to be aware of. So let’s take those three arguments I just cited and see why they may be just misconceptions.
First, I’ll concede that you don’t really own the car when you are leasing it. But let me ask you this. When you get a loan on a vehicle, are you the sole owner? Of course not. You and the bank are the owners. You don’t own it until you make that final payment.
You may want to break it to your buddy very gently that he’s wrong about leasing being more expensive than buying. An auto lease can be cheaper. Let’s say that you lease a car with a sticker price of $24,440. For the sake of simplicity I won’t figure in rebates or anything like that. If you do a short-term car lease of two years, your term is two years; not five or six years like a conventional loan. So instead of financing $24,440 for a vehicle that you may not keep four years later, you finance $9,775 for the vehicle that you lease for two years. This is based on an auto lease quote of 24 months with payments of $407.33 per month. Again, I’m basing this on just price. There are other factors in a lease quote that I’ll explain later.
An added bonus is that the lease quote you are given can be tailored to your driving habits. If you drive a vehicle 10,000 miles a year, there is a lease program that will work for you. The lease payments you see in advertisements are generally based on a term of 24 months and 10,000 miles driven per year. If you drive 20,000 miles a year you can still get a new-car lease. Of course, your payments will be higher if you drive more. But for the average driver it may be a viable option. However, if you drive 35,000-40,000 miles annually, leasing may not be cost effective.
As I said earlier, a short term car lease is generally a term of 24 months. But you can get a longer term of up to 60 months in some cases. And with a lease you don’t have to worry about depreciation. And you can get a new vehicle every couple of years if you do short term leases.
Another advantage to leasing is that you have three options at the end of your lease. You can buy the vehicle, or you can lease another vehicle. Or you can simply walk away. If you leased a 2006 Hummer, chances are you are considering that option.
Leasing is not limited to new vehicles only. You can also get a used-car lease. This is a great option. Manufacturers like Ford and Lexus have a Certified Pre-Owned program. The difference between this and a typical used vehicle is that the certified pre-owned vehicles go through a stringent checkup to make sure that the vehicles are up to factory standards.
Whether you lease a new or used vehicle, there are a couple of caveats. First, be realistic about your driving habits. If you drive 15,000 miles a year, don’t try to get a lease based on 10,000 miles per year. If you go over your mileage, you’ll get charged. Also, keep your vehicle well maintained. If the dealer has to replace tires or a windshield, you’ll be charged. That way you’ll avoid a lot of those charges at the end of the lease.
And hopefully you’ll feel as though you made a smart decision to lease instead of buying a vehicle.