The Benefits and Pitfalls of Leasing Cars
Leasing is a way to finance the acquisition of a new or used car. With a lease, you do not pay for the complete purchase price of the vehicle; you pay for how much you have used the vehicle. It is essentially a long-term car rental.
You must determine if a lease is right for you, or if you would be better off buying a vehicle.
Benefit: Lower Up-Front Costs
Often with a lease, the dealer will not require a down payment. With many leases, you pay your first month’s payment and a security deposit before you drive off. You may have to add in a few fees, but it should still be less than you would have to pay for a new car.
In most states, you will see a sales tax savings because tax is paid on each payment, not the entire purchase amount.
Pitfall: High Surrender Fees
When you first lease a car, the salesman will tell you the benefit you will receive from just being able to drop off the car and move on. It sounds so simple. Be careful. You can end up with some high surrender fees on many leases. You may be charged a fee for every mile over your allotted mileage.
Some leases also have lease termination fees that they charge just for the privilege of walking away. Some leases also require you to have a new state safety inspection before you can walk away. You will need to have any repairs completed that are required for this inspection.
Benefit: You Drive a New Car More Often
With a lease, you can arrange to drive a new car every two to three years. Models change quite a bit in that amount of time, and with a lease you can always be driving a new up-to-date vehicle. For some people, this is extremely important.
Your vehicle generally stays within the manufacturer’s warranty, reducing your cost of repairs and the risk of breakdowns.
Pitfall: You Never Truly Own Anything
This might not seem like a problem to you right now, as you can always just pick out a new car when the lease is over. But in three years, you could feel very differently, and your entire financial situation could change.
What if you no longer qualify for credit when it is time to get a new vehicle? You could be in trouble. Also, when you are purchasing a vehicle, eventually the payments stop and you still have a vehicle to drive.