Per a survey taken in 2016, there are more people leasing cars than ever before. To this day, many are still opting to do that than buy a new car. However, it’s important to understand what leasing means and how it differs from actually buying a car outright. Getting all the facts, including the pros and cons, can help you make a better decision about whether leasing is the better option for you.
What is Leasing a Car?
Leasing a car means that you are paying to drive a new car. Unlike buying a new car, you do not actually own the vehicle when you choose to lease. Leasing is a type of financing that has become largely popular in recent years. Essentially, you are renting a new car from a dealership and are allowed to do so for a set length of time and a specific amount of miles.
When you lease a vehicle, you are required to make monthly payments toward it. Once you have reached the end of your lease, you can either return the vehicle to the dealership or buy out the remainder of the lease if you choose to own the car.
When you own a car you are 100 percent responsible for all repair costs. If your car suddenly breaks down, you could find yourself faced with unexpected emergency repair costs. Not everyone has the savings to cover such unexpected costs, in which case you may want to consider alternative short-term financing options like a loan, credit card, or a line of credit online. However, with a lease, many repairs are built into the contract and could save you from sourcing additional funding to get back on the road.
Of course, there are certain pros and cons that come with leasing a car. This is information that can help you make an informed decision about whether you want to lease instead of own outright.
Pros of Leasing a Car
When you lease a car, you can get the following benefits:
• Lease payments are lower than loan payments: Typically, when you buy a car and secure a loan to pay for it, you have higher monthly payments toward the loan. When you lease, your monthly payments are much lower.
• You can get a new car every few years: Leasing a car usually includes a contract that lasts around three years, which means you can get a newer vehicle once your lease is up.
• No hassle once the lease ends: As long as you meet all the requirements of your lease, once it has expired, there are no hassles. You simply return the car to the dealership with the keys and that’s that.
• More financial incentives: Usually, when you lease a car, you only have to pay a small down payment and get to drive the car home. In many states, you only have to pay the sales tax on your monthly payments as well, which allows you to claim those payments as a tax deduction.
Cons of Leasing a Car
There are certain disadvantages to leasing a car, which include the following:
• You don’t own it: Leasing is essentially renting, which means you don’t own the car. As such, you can’t do whatever you want with it. You can’t modify the vehicle or drive over the specified mileage stated in your lease agreement.
• Penalties for wear and tear and mileage: If you have wear and tear on the car, which can happen even if you are not involved in an accident, you can expect to pay penalties on it. The same goes for driving over the mileage limit.
• Added costs: There are usually added costs associated with a car lease. An acquisition fee, disposition fee and gap insurance are a few typical examples.
• You’re on a contract: Leasing a car means you have a contract, which means you must abide by that. This means if you can no longer afford to pay toward your lease, the dealership can take back the car.
• Constant payments: Leasing a car means you have monthly payments that are seemingly endless. The costs can add up over time and make it even more expensive than buying a new car.
Overall, if you are considering leasing a car instead of buying one, these are the things you must keep in mind. Educate yourself and make a decision that works best for you.