What are the Benefits of Leasing a Car?
For the majority of us, it makes more financial sense to buy a car rather than lease. All the same, if the lease looks good and it’s a financially sensible way for you to proceed, then there are many advantages to leasing a car rather than buying. Here we consider 12 key benefits of leasing a car rather than purchasing.
1. Monthly payments are lower than financing
Among the top advantages of leasing a car is that in comparison to financing a car as a way of making a purchase the monthly payments are lower when leasing.
Lease payments are not quite the same as financing payments. Financing a car means that over the lifetime of financing you’ll pay the full purchase price of the car in addition to interest.
With lease payments, the payments cover the depreciation of the vehicle, in addition to the cost of rent and taxes owed. These payments are continually made over the lease term. In turn, this means that typically, the amount you’d pay for car leasing is substantially less than the amount you’d pay for financing.
So, essentially, you can save the money saved with leasing in comparison to financing or you can upgrade in terms of the vehicle you choose to lease.
2. Benefits of Leasing a Car – Lower cash downpayment
When you purchase a car the downpayment can amount to anything up to 20% of the value of the vehicle. When you lease you either pay a small (much smaller than when financing) downpayment or you pay zero downpayment, depending on the dealer.
When leasing, it’s typical to pay the initial month’s payment, in addition to registration fees, title fees, and taxes. There may also be an acquisition fee to pay as well as some other fees when the lease is signed. Nevertheless, usually, the cost of all of these payments together is less than the downpayment you’d make when purchase financing.
3. Tax benefits for business leases
If you wish to lease a car for business, typically, you’ll be able to write off all of the lease payments in the form of a tax deduction. If you are not a business owner, most states will only impose a tax on the ‘usage’ segment of your lease.
This means that you can avoid paying taxes on the vehicle’s full price, and that can allow you to save money in comparison to buying the vehicle whereby you’ll pay taxes on the full amount. How much can you save? A few hundred dollars is not uncommon.
4. Benefits of Leasing a Car – Repair costs are lower
Lease terms are short and that means the majority of repairs made to the vehicle will be covered by the bumper-to-bumper warranty provided by the manufacturer. Occasionally, maintenance costs are covered by the manufacturer as well.
It’s wise to fully understand the type of maintenance and repairs that are covered before you sign the lease agreement because you’ll want to avoid any vehicle service bills that are unexpected.
5. No worries about resale
With a closed-end lease, your lease comes to an end then you simply return the vehicle. There are no headaches to be had in terms of trying to resell, plus the car’s value at the conclusion of the lease isn’t your responsibility – the responsibility belongs to the leasing company.
At the conclusion of the lease term, you might still have to pay some additional amount. This can include excess mileage over and above your original agreement and excess wear and tear.
6. Good for accident-prone drivers
When you lease a car, should the car be wrecked, your insurance will cover the bill. The vehicle will, however, have a diminished resale value, but this is not your problem – it’s a problem for the leasing company to deal with. Obviously, when you buy a car and if the car is wrecked, while you benefit from insurance coverage, when it comes time to sell the vehicle on, the ‘diminished value’ will come into effect and you’ll get must less for the car than otherwise you would.
7. Benefits of Leasing a Car – Inclusive of gap coverage
The majority of car leases come inclusive of free gap insurance. If the vehicle is stolen or totaled during your lease term, you’ll be fully protected with gap insurance.
8. Getting a new car is easy
A typical car lease has a duration of between 24 and 48 months. Due to the fact that lease terms are fairly short, you’ll be able to get a new car fairly soon with none of the hassle or the commitment required when you purchase a car or you sell the car you currently have because you would like to upgrade.
After the conclusion of the lease, all you need to do is give the vehicle back to the dealership. Next, select the vehicle you now wish to drive and sign the lease.
9. More expensive vehicle than you could afford if financing the purchase
While you may have been dreaming about making an investment in the car you really want, it’s possible that sadly you’re unable to get the car because you are unable to qualify for purchase financing.
Why not consider leasing the car instead?
If you opt to lease you’ll have a choice of vehicles that are more expensive – more costly models with higher-grade trim packages. This is because leasing typically calls for monthly payments that are lower than when purchase financing.
10. Drive the newest models
When you lease, you can swap over the car you drive every two to three years. This means you enjoy the benefits of the newest models plus the latest safety features and most advanced technology.
11. An option to buy
More frequently than not, leases will allow you to purchase the vehicle whereby the price is predetermined. If the purchase price you’ve been offered is less than the actual value of the car, this option to buy makes great sense. Either that or perhaps you simply just adore the vehicle so you wish to buy it regardless.
12. Benefits of Leasing a Car – No worries about vehicle quality or reliability
Leasing a vehicle means that there’s no need to be concerned about quality or reliability issues. You’ll be driving the car for only two or three years, over which time, for the most part, the majority of cars will be devoid of issues. In turn, you have the choice of driving a car that you wouldn’t necessarily wish to buy.
Disadvantages of Leasing a Car
1. There are monthly payments to be made
When you lease, there are always car payments to be made. After all, when you lease, you’re never going to be the actual vehicle owner. If that idea puts you off, it’s best to avoid taking the lease route.
Nevertheless, the lease may have an option that you can finance the vehicle until the remaining value is paid off at the conclusion of the lease term. In other words, after the loan payments are completed, you will then own the vehicle.
2. Mileage restrictions
When you lease a car there are mileage restrictions that come as part of the agreement. If you have a tendency to cover a lot of miles in your vehicle it might be a better alternative to purchase the vehicle as opposed to leasing.
As a minimum, you’ll want to consider an open-end lease. What is an open-end lease?
Open-ended leases may have set lease terms or flexible mileage limits. It’s a flexibility that comes at a cost, though. It’s you as opposed to the leasing company that’s responsible for paying the difference between the vehicle’s residual value and the actual value.
So, say you do a lot of miles or say, for whatever reason, your car gets quite badly damaged, then the chances are the vehicle’s value is going to be lower at the conclusion of the lease than what was originally anticipated. It’s then down to you to make up this difference – namely, the difference between the car’s actual value and the lease-stated residual value.
For the most part, car leases will restrict mileage usage to no more than 15,000 miles annually. Occasionally, this figure could be 12,000. Venture over those allotted miles? For each of the extra miles the vehicle ‘incurs’ within the year you’ll be required to pay anything between 10 and 25 cents. The amount will depend on the type of vehicle and your lease agreement.
The extra cost per mile incurred is a penalty fee and there’s no doubt that it can if you do rack up on the miles mean you have a large excess bill to pay because of it.
3. Higher coverage costs charged by the vehicle insurer
For leased vehicles, insurers typically will charge a higher coverage cost. Nevertheless, the cost depends on three factors and it may well be a nominal cost to pay. Those factors are the same for normal insurance: Driver’s age, place of residence, and driving record. Obviously, if you’re an older driver with an excellent driving record and you reside in what the insurance company deems as a ‘safe area’, then you’ll pay less for the cost of insurance.
What are the Main Differences Between Leasing and Buying a Car?
Whether you lease or you buy a car is dependent on your own priorities.
For some, the decision is purely about finances – whatever alternative costs less is the right choice.
For others, it’s more about the less tangible factors. Those factors may include being in a position to get behind the wheel of the latest model of car on the market.
Here are a few other major distinctions between leasing and buying a vehicle.
When you lease a car
- When you lease a vehicle, basically it means that you’re renting from a dealer over a certain period of time.
- You cannot build up equity in the car when you lease.
- In general, lease payments are lower than paying purchase financing each month for a new vehicle.
When you buy a car
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- Buying a car typically means that the insurance premiums are lower than if you were to lease.
- When you own a car you can rack up mileage and you don’t have to worry about any restrictions or penalties of a financial nature.
- The value of your car will depreciate, especially over the initial couple of years.
Final Words
Essentially, when you lease a car you’re going to be paying for the vehicle’s most expensive years on the road – the initial two to three years.
When you lease a car, it’s wise to avoid vehicles that have a high rate of depreciation. Go for a vehicle that keeps its value over the mid to longer term.
An untrustworthy dealer might attempt to dump some of the cost of depreciation onto you. They do this by entering a low residual value – unfairly low – into the contract.
Finally, when leasing a car, watch out for clauses in your contract that say words to the effect of ‘for any excessive wear and tear there will be additional charges’. Either that or ‘for any additional mileage the leasee must pay above-average costs’.
As much as you can, you’ll want to be sure that any surprise additional costs are well and truly minimized.
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