What Are the Advantages and Disadvantages to Leasing a Car?

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What Are the Advantages and Disadvantages to Leasing a Car?

Leasing a car is one popular way to get a ride without having to pay full price. Since the lessee only gets the use of the car for a few years, the monthly payments are lower than if buying the car new. A leased car fits much better into a monthly budget. But depending on what the would-be lessee wants, a car lease could end up being a bad deal overall. Deciding whether or not to lease a car involves looking at the entire financial package, including total payments and extra fees, as well as looking at what the lessee actually gets for his or her money. It is important that drivers know the advantages and disadvantages of leasing as well as an overview of all the ways a person can get access to a vehicle: buying, leasing, renting, and using a car-sharing service. If leasing is the right option, potential lessees should know how to lease a car and get a good rate. Leasing a car is neither right nor wrong across the board. Instead, leasing is a good option for some people and less optimal for others. It is up to the would-be lessee to decide whether leasing a car works for his or her situation and interests.

What Is Leasing?

It is easier to consider the advantages and disadvantages of leasing a car if one is clear about the differences between leasing and buying. Although the two are very distinct procedures, from the perspective of the driver, leasing and buying are very similar; in both cases, the driver makes a monthly payment and has a car to drive. This overview also covers both renting and car sharing in order to distinguish them from leasing and because anyone interested in leasing a car might also be interested in these options as an alternative.

Buying a Car

Buying a car is, in principle, like buying anything else; in exchange for money, the seller gets to own a car. The complicating factor is that very few people pay for a car upfront. Most people put down a deposit and then take out a loan for the balance. The buyer spends several years paying the lender back, plus interest, plus paying insurance. By the time the loan is paid off, it may be nearly time to buy a new car, so owning a car usually means making payments, just like renting or leasing. The big difference is that after the loan is repaid, the buyer owns the car and does not have to make payments anymore.

Leasing a Car

Leasing a car is a long-term arrangement, something like renting a house rather than buying one. The lessee gets to use the car for two to four years while making payments, but the car still belongs to the lessor, who retains the right to set certain conditions. For example, a lessee cannot decide to simply let a dented bumper go unrepaired; the owner of the car wants it back in good condition. Lease agreements vary but usually involve relatively small monthly payments with little or no payment due upfront and some limitations as to the number of miles the lessee can drive. Lessees who exceed the mileage limitation may have to pay a per-mile fee. If the car is returned with excessive damage, or if the lessee wishes to return the car early, there are usually additional fees. At the end of the lease period, the lessee may have the option to buy the car, but most leases result in the individual leasing a different car instead.

Renting a Car

Renting a car is a short-term arrangement, like staying in a hotel room rather than renting an apartment. Some people, such as those who live in large cities that are more conducive to walking than driving, do not need a car on a daily basis. These individuals may need access to a vehicle for only a few days or months per year. Renting can be a solution in this case. Rental agreements vary; some are good deals, while others are not. Some people may be refused a rental car based on age or driving record. Because the renter is charged for the time he or she has the car (with or without a per-mile fee), the car can be returned any time without penalty. Renting is usually the most flexible but also the most expensive option overall, depending on how often a driver needs a car.

Sharing a Car

Car sharing services also exist as an alternative to leasing or owning a car. These services allow members to access a car whenever they need it, without having to pay for, care for, or park the car when they do not need it. Some of these services simply offer rental agreements tailored to the on-demand market, while others charge an annual membership fee in exchange for access to a reservation system. Members reserve a car for hours or days at a time, pick it up from a designated parking spot using a card key, and return it to the same spot at the end of the reservation. Some such services focus their fleet on hybrid cars, or electric cars. Car sharing services are a good option for people who only need to drive a few times a month and want convenient access to a car without having to bother with the hassle of ownership. Members pay in proportion to how often they use the car, a flexibility not available when leasing or buying a car.

Advantages and Disadvantages of Leasing

After learning what exactly a lease is and putting it in context of other methods of car access, it is time to look at the specific advantages and disadvantages of leasing. When leasing a car, a person gets the use of a brand new car for a few years for a relatively low cost but does not usually own the car at the end of the lease period. Whether this is an advantage or a disadvantage depends on the buyer’s situation, needs, and wants.

Advantages of Leasing

There are several plus points to leasing a car that may or may not be attractive to drivers. Leasing is best for people who like driving new cars, who do not want to worry about maintenance issues, who are not interested in owning a car, or who cannot afford to own a car.

Brand New Car

Leasing a car is a good option for people who want to always have a new car. If a driver gets bored with vehicles easily, leasing may be a great option. At the end of a short lease period, two to four years, the driver can turn in the car and lease a brand new vehicle with all the latest bells and whistles.

No Long-Term Commitment

Leasing is advantageous for people who know they will not need or want the car for more than a few years. For example, someone who expects to move every few years for work might opt to lease a car rather than deal with the hassle of moving and re-registering the car in each new location. Leasing is also perfect for people who, for one reason or another, are not interested in owning a car long-term. At the end of the lease period, the car is simply returned; the lessee does not have to bother selling or trading in the car.

Few Maintenance and Repair Issues

Since the leased car is typically brand new, the chance of serious maintenance or repair issues coming up is fairly small. In most cases, the car remains under the manufacturer’s warranty for the entire period of the lease, a further financial advantage. Many lease agreements include "gap insurance" or "waived gap liability," meaning that if the car is stolen or totaled, the lessee is not responsible for any remaining payments that regular insurance does not cover.

Lower Monthly Cost

Lease payments are lower, sometimes substantially lower, than loan payments for the same vehicle, and there are often no upfront charges, such as the down payment required when purchasing. For some people, this is the bottom line. Leasing allows a person to drive a brand new car for less money. In exchange for lower payments, the lessee does not have ownership of the vehicle when the lease term is up, as they would if they had purchased the car and made the higher payments.

Disadvantages of Leasing

While there are positives, there are also downsides to leasing a car. Leasing is generally not a good idea for people who want to eventually own a car,

No Ownership

Lease agreements are good for people who do not want to keep a car very long, but they are not usually good for people who are interested in owning a car. A lease costs less than a loan over the same period of time because the customer gets less. At the end of a loan, the buyer owns a car that he or she can usually drive for a few more years payment-free, while at the end of a lease, the lessee has nothing. Many people who buy a car look forward to the day when they pay off the loan and no longer have to make payments. Someone who perpetually leases will always be making payments because ownership is never achieved. Although some lease agreements do include the option to buy, the purchase price and the lease payments combined generally add up to more than it would have cost to buy the car new with a loan. When it comes to owning a car, leasing is usually not the most economical option.

Restrictive Terms

A change in circumstance can often make leases much less attractive as well; for example, getting a new job that requires a lot more driving puts the lessee in the position of choosing between paying penalties for the extra miles or penalties for terminating the lease early. In either case, the extra charges can be substantial.

Required Maintenance and Upkeep

While a lessee does not often have to pay for mechanical problems that occur with the car, there are other aspects of maintenance and upkeep that are required. As noted earlier, a lessee cannot decide to save money by not making cosmetic repairs after an accident, since extra charges apply if the car is returned with excessive wear or damages. What counts as "excessive" is determined in the fine print of the lease agreement, which may be written so that virtually any deviation from like-new condition results in a charge, so it is important to read the fine print before signing.

How to Lease a Car

Leasing a car begins the same way buying a car does; by researching possible cars and visiting dealerships. Some experts recommend not telling the salesperson of the intent to lease until after the purchase price has been negotiated, since some salespeople try to use the low monthly payments of a lease as a distraction while aggressively negotiating a higher overall price. Alternatively, the lessee can simply refuse to be distracted while negotiating. Other issues to be aware of include the possibility that the dealership may attempt to aggressively sell extra, unwanted services or that the dealership could attract potential lessees with excellent terms that only apply to very specific cars. Asking for something extra, such as a DVD player or an in-dash GPS device, voids the offer and begins negotiation again but with much less favorable terms.

Calculate how much the car should cost to lease before entering negotiations and avoid any dealership that offers dramatically higher terms or whose employees use aggressive sales tactics. Good dealerships offer helpful and honest service.

Conclusion

Whether or not to lease a car comes down to a personal decision. If a person wants a succession of new cars for a low price without the hassle of re-selling, then leasing is an excellent option. If a person wants a car for only two or three years before an expected relocation, then leasing can be a favorable option. But what a lease cannot do is just as important as what a lease can do. A standard lease does not result in ownership. A lease is not a cheap alternative to buying a car because a lease that does result in ownership is usually more expensive than a standard loan. Renting and car sharing are alternate options that may work for some people interested in short-term solutions. The most important thing is to keep the eye on the objective and find the best transportation solution given one’s situation and interests.

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