Don’t Miss These Facts
- When leasing a car, the leasing company purchases the car from the dealership, and you basically rent it from them
- At the end of your lease, you have the option of either returning the vehicle to the dealership or purchasing it
- There are restrictions in the lease agreement to consider before making your final decision
Leasing a car is merely another way of financing a vehicle. The leasing company purchases the car from the dealership, and you basically rent it from them. The process is very similar to buying a car, although leasing generally results in reduced up-front costs and monthly payments.
However, you can only rent a car for a set amount of time, typically two to three years. And at the end of your lease, you have the option of either returning the vehicle to the dealership or purchasing it.
In this article, we’ll review the top 10 reasons why you should not lease a car and consider whether it’s better to lease or buy a car.
Ten Reasons Not To Lease a Car
Take a look at the top 10 reasons you might not want to lease a car.
#1 – You Are Spending Money on Something You Don’t Own
When you lease a car, you are essentially paying a large monthly fee merely to drive a vehicle. You are taking on the financial and physical responsibility for the car, but it remains the property of the leasing company. And the payments don’t end unless you choose to purchase the vehicle at the expiration of your lease. But in that scenario, you’ll spend a lot more money on the car than if you simply purchase it.
#2 – Mileage Limit
Typically, a car lease contract will include a mileage restriction of 10,000 to 12,000 miles per year. This is acceptable for most drivers, but it can rapidly become an issue for others. Even if you don’t plan to drive frequently, a mileage limit restricts your sense of freedom and autonomy.
#3 – Maintenance Costs
You don’t own the car when you lease it, but you are still accountable for all maintenance and repairs. The fact that you don’t own the vehicle but are solely responsible for its health and worth is likely one of the major issues with car leasing.
If the car is totaled in an accident, you will still be responsible for the remainder of your contract. There are stories about leased vehicles having been written off within the first month or two of ownership, only to be bound by a two-year contract.
#4 – Leaving a Contract Early Results in Major Fees
It’s possible that you’ll experience financial difficulties or that you’ll have buyer’s remorse. What should you do when you’re in a position like this? A car salesman may persuade you regarding the lower monthly payments for a leased car, but they fail to mention the expense of early termination fees.
The most expensive — and most typical — fees include the buyer’s obligation to pay the remainder of their lease all at once. This can be a very expensive price, and car leasing companies have a strict no-compromise repayment policy.
#5 – You Pay More Interest
Although auto lease monthly payments are lower than typical car loans, you will pay significantly more interest. This reverts to the core problem with car leasing. You don’t own the vehicle, and you can’t use an asset as collateral if you don’t own it. To make up for the lack of collateral, lenders must charge higher interest rates. Interest consumes the majority of your monthly payments, which is never a reasonable investment.
#6 – You Must Keep the Leased Car in Perfect Condition
Because you are technically “renting” a car, you must ensure that it is kept in good working order. If you have any incidents, you must have any damage repaired before returning the vehicle to the dealer. The car dealer also determines what condition is acceptable, and if your vehicle is deemed in poor condition, you may be charged additional expenses.
#7 – If You Get into an Accident, Your Lease Terms are the Same
If your car is totaled, hopefully, your insurance will cover everything you owe. Otherwise, if you find yourself in this unfortunate scenario, you may still be required to pay a large sum to the leasing company for a vehicle that is a total loss.
#8 – At the End of the Lease, You Have to Turn the Car in With Nothing to Show for It
As mentioned earlier, you must either return the car to the dealership at the end of the lease or you can choose to buy it out. Keep in mind that you don’t receive anything when you return the car. You simply return it, and the car company resells it to someone else while retaining your money. This is not the case when you are the owner of a car. In contrast, you can sell your car when you’re ready to get rid of it and retain the money.
#9 – You Can’t Sell the Car to Finance a New One
As mentioned previously, you can’t sell a leased vehicle. This makes it harder to finance future car purchases, and you may become trapped in a car leasing cycle as a result. You may be unable to finance a better purchase because you do not have an asset to sell. You practically end up with the same amount of money you start with when you lease a car. As a result, you may find yourself leasing a car repeatedly.
#10 – You Can’t Customize a Leased Car
Finally, you won’t be able to customize a leased car in most cases. You must read the conditions of your agreement to determine what is and is not permitted. Typically, you can’t recolor or customize a leased car, indicating that it must be returned to the car owner in its original condition.
How Car Leasing Works
With car leasing, a down payment is required up front, followed by a series of monthly installments. However, there are a few restrictions in the lease agreement, including:
- An agreed-upon mileage limit
- No maintenance coverage
- Availability of maintenance coverage as an additional fee
- Responsibility for any damage, upon return of the car
When compared to purchasing a vehicle, car leasing has additional restrictions. It’s immediately evident that this isn’t your car — you’re simply renting it.
For some, leasing is worth the initially lower price. However, not owning the asset you’re driving can have serious ripple effects. With leasing, you have none of the benefits of owning an asset, but you still have all the risks.
Leasing vs. Buying a Car
There are pros and cons of leasing a car as well as purchasing a vehicle. Deciding to lease or buy a car is a difficult decision. On one hand, buying entails greater monthly payments, but in the end, you own an asset — your vehicle. A lease, on the other hand, provides lower monthly payments and allows you to drive a car that is more luxurious than you could afford to buy. However, you are locked into a cycle in which you will never be able to pay off the car.
| Buying | Leasing | |
|---|---|---|
| Ownership | You own the vehicle and get to keep it as long as you want it. | You don’t own the vehicle. You get to use it but must return it at the end of the lease unless you decide to buy it. |
| Upfront Costs | They include the cash price or a down payment, taxes, registration, and other fees. | They can include the first month’s payment, a refundable security deposit, an acquisition fee, a down payment, taxes, registration, and other fees. |
| Monthly Payments | Loan payments for purchasing a car are usually higher than lease payments because you’re paying off the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees. | Lease payments are almost always lower than loan payments because you’re paying only for the vehicle’s depreciation during the lease term, plus interest charges (called rent charges), taxes, and fees. |
| Early Termination | You can sell or trade in your vehicle at any time. If necessary, money from the sale can be used to pay off any loan balance. | If you end the lease early, charges can be as costly as sticking with the contract. On occasion a dealer may buy the car from the leasing company as a trade-in, letting you off the hook. |
| Vehicle Return | You’ll have to deal with selling or trading in your car when you decide you want a different one. | You return the vehicle at lease-end, pay any end-of-lease costs, and walk away. |
| Future Value | The vehicle will depreciate, but its cash value is yours to use as you like. | On the plus side, its future value doesn’t affect you financially. On the negative side, you don’t have any equity in the vehicle. |
| Mileage | You’re free to drive as many miles as you want. But keep in mind that higher mileage lowers the vehicle’s trade-in or resale value. | Most leases limit the number of miles you may drive, often 10,000 to 12,000 per year. (You can negotiate a higher mileage limit.) You’ll have to pay charges for exceeding your limits. |
| Excessive Wear and Tear | You don’t have to worry about wear and tear, but it could lower the vehicle’s trade-in or resale value. | Most leases hold you responsible. You’ll have to pay extra charges for exceeding what is considered normal wear and tear. |
| End of Term | At the end of the loan term, you have no further payments and you have built equity to help pay for your next vehicle. | At the end of the lease (usually two to three years), you can finance the purchase of the car, or lease or buy another. |
| Customizing | The vehicle is yours to modify or customize as you like, although doing so may void your warranty. | Because you must return the vehicle in salable condition, any modifications or custom parts you add have to be removed. If there is any residual damage, you’ll have to pay to have it fixed or you’ll need to file an insurance claim and pay a deductible. |
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Should I lease or buy a car?
Leasing an automobile can be appealing to some people. You obtain a new, usually very nice car for a reduced initial cost. A deposit is required, followed by a series of monthly payments for two to three years, occasionally longer. While you may spend less upfront, you will almost always pay more in the long run. In addition, car leasing has a slew of additional drawbacks.
So is leasing a car a good idea? When considering the impending financial and logistical issues, leasing a car seems like a better route. However, that’s a decision for you to make depending on your situation.
