Car leasing can be an attractive option for vehicle shoppers. The idea of a monthly payment that lets you swap into a new vehicle every two or three years is tempting in itself, and lease payments are typically cheaper than loan payments. But does it make the most sense with your specific financial situation?
What Is a Car Lease?
There are some people who equate leasing to renting a new car. You agree on a monthly payment and a length of term with the dealer. When the time is up, you have the option to either purchase the car outright or return it. At that point, you can also choose to start over with a new lease on a different vehicle.
Car Leasing Pros
One of the pros of leasing a car is that you won’t have to pay for long-term car maintenance. Additionally, you won’t worry about the reliability of your car or truck, presumably because it’s new and in good condition.
Leasing a car can be a good option for a business owner. As long as you can prove the vehicle was used for business purposes, you can write off the lease payments as tax deductions.
Car Leasing Cons
All car leases come with a yearly mileage restriction. Your commuting must fall within the range proposed to you by the dealership when negotiating your monthly payment. Consider the distance you plan to drive over the next few years. For instance, if you have a job that requires you to drive from place to place, or you already planned a long road trip, it might not make sense for you to lease a car.
The dealership will also likely try to sell the car secondhand to you upon the termination of your lease. You’ll also have to account for any damage done to the vehicle while in your care. Each lease agreement deals with nicks, scratches, and worn-out components differently, but you could be required to pay for some repairs out of pocket.
Important Considerations
If you decide to lease, be sure to read the fine print on your agreement. If you plan to do a lot of driving, you need to understand what kind of per-mile penalties you would face if you go over the limit.
Unlike a car purchase, a lease doesn’t build equity in the form of a vehicle you can keep driving or choose to sell yourself after the last payment is made. This doesn’t sound so bad at first—after all, you get to drive home in a new car at the end of the term. But it’s important to consider, for instance, the cost of two three-year leases versus a single six-year vehicle loan. While a monthly lease payment may be cheaper than a monthly loan payment, it might work out that paying back the loan is cheaper in the long run.
It often makes more financial sense to buy rather than lease. The fact that you own the vehicle at the end of your payment term makes up for lower monthly lease payments that allow you to drive a more expensive car. Do the math. Know your financial situation and then make the right call for you.