Leasing is a popular option among those in the market for a new car. In 2019, a record-breaking 4.3 million Americans returned their leased vehicles. While leasing has its advantages, such as lower monthly payments and the ability to rent a brand-new car that’s nicer than what you could otherwise afford, the process is often misunderstood. It is quite different from purchasing a car with a loan and involves different complications.
Although you may still decide that leasing is the best choice for you, it’s wise to inform yourself of what the process entails before making a final decision on how to pay for your car.
Mileage Limits
One factor to consider is that leases have mileage limits. When you sign a lease, you have to determine your mileage limit: the higher the limit, the more your payments will be. If you drive over that set amount during the lease, you’ll be forced to pay anywhere from 15 to 25 cents a mile. Most leases only allow for 12,000 to 15,000 per year, so if you have a long commute or enjoy road trips, you’ll want to consider buying instead of leasing.
Perhaps your annual mileage is easy to calculate and falls within these limits. If you’re confident the coming years will match your calculations, the mileage limits may not be an issue for you.
Wear and Tear
Most leases allow for a “reasonable” amount of wear and tear. However, you won’t know exactly what that is unless you read the complicated legal document in detail, and even then there still might be some grey area. Ultimately, the leasing company can hold you liable for any wear and tear that’s considered excessive, which can cause the overall cost of your leased vehicle to add up quickly. You need to be conscientious about treating your car well to avoid the risk of higher fees. While leasing is supposed to help you save on regular maintenance expenses, the reality is that doesn’t always happen.
Besides the allowed wear and tear, you’ll be expected to return the car in the same condition as it was when you got it, which also means that customization is out of the question. While car customization is not important to everyone, the legality of wear and tear on a lease can unexpectedly become risky and complicated.
Complicated Car Accidents
One possibility no one wants to consider when they’re shopping for a new car is the chance that they will get in a car accident. And vehicular accidents, often full of legal complications, become even more legally complex when a leased vehicle is involved.
Although you don’t own the car when you’re leasing, you are still required to pay for insurance. In addition to meeting the minimum insurance requirements, you may be required to purchase additional guaranteed asset protection (GAP coverage) to make up the difference between the value of your car and your financial obligations under your lease. Some leasing companies require this additional type of insurance.
If your leased car is totaled in an accident or otherwise significantly damaged and you don’t have GAP coverage, you will still owe the leasing company for whatever isn’t covered by your auto insurance. If you suffered injuries in this kind of accident and you believe it was someone else’s fault, it’s best to contact a car accident attorney for legal help.
Higher Expenses in the Long Run
Most financial experts agree that overall, the most affordable way to get a car is to buy it out of pocket (ideally used but in good condition). Then you own the vehicle immediately and are not paying any interest on it. For many people, this ideal is not realistic, and they must consider financing or leasing their vehicle so they can pay on a gradual monthly basis. While a leased car will likely result in lower monthly payments than a car loan, it usually ends up being more expensive in the long run.
Higher insurance costs, mileage limits, and being forced to pay the leasing company back for vehicle depreciation at the end of the lease all contribute toward a higher cost. The short-term nature of leases also contributes to their cost: after 3 years, you’ll most likely have to find another lease (likely at a higher rate, as leasing prices rise over time), rather than continuing to pay off a car loan over a longer period of time.
Keeping a car for at least five years is generally a wise financial decision, though certainly not as glamorous as renting a brand-new car every three years. And if you own the car, in the end, you can sell it or apply the trade-in value toward your next vehicle. While leasing may make sense in some circumstances, it is not the best choice for everyone. Before you decide how you’re going to pay for your next car, make sure you understand the pros and cons of all your options.
