Pros and Cons of Leasing a Vehicle

Automobile key with leasing tag.Before making the decision to buy or lease a new vehicle, it is important to understand what it means to lease a vehicle and the reasons why it may or may not be your best option.

A lease, in basic terms, is an arrangement between the dealership and the vehicle buyer that involves paying the difference between the price of a new vehicle, and the price the dealer thinks they could get for the car when traded back in at the end of the lease. It also includes the cost of wear and tear on the vehicle.

The price the dealer thinks they will get for the car when traded back in is termed the residual value and is typically between 50-60% of the original showroom price on a 36-month lease.

Many drivers are drawn to a lease because of this arrangement. It effectively offers the driver the ability to pay less for the vehicle when compared to purchasing it outright. There are also several other advantages to leasing, including having a brand-new car every 36 months. However, while these may seem appealing, you should review a few of the pros and cons of such an arrangement before driving off the lot.

Pros of Vehicle Leasing

The most common advantages to leasing over buying revolve around the cost. In most cases, leasing a vehicle comes with the following financial perks:

  • Lower down payment.
  • Lower monthly payment.
  • End of lease does not require negotiating trade-in value.
  • Maintenance may be included in the lease.

Cons of Vehicle Leasing

Although the financial advantages of leasing are a draw, downsides exist. The biggest drawbacks of leasing include:

  • At the end, you own nothing.
  • There is always a payment as long as you drive a car.
  • Early termination can have high charges.
  • Extra mileage charges can be very expensive.

Questions to Ask When Considering Leasing a Car, Truck, or SUV

1. Do you drive more than 15k miles a year?
Most leases allow for 12,000 to 15,000 miles per year. If you drive over this amount, the overage charges will make leasing a very expensive option.

2. Do you take good care of your car?
Leasing contracts call for cars to be maintained to high standards, and so excessive wear can prove costly.

3. Do you plan on modifying the vehicle?
Leases generally do not allow for modifications without substantial payment to the dealership.

4. Do you anticipate any lifestyle changes soon?
Will you have kids in the next year or so and need a larger car? Or will you be moving to a new area where you will need a Sport Utility Vehicle (SUV)? Breaking a lease is expensive, so you must consider that you will need to stick it out with the car for the term of the lease.

Questions to Ask Regarding an Auto Lease Agreement

If you’ve determined leasing a vehicle makes the most sense for you, here are several questions to ask when evaluating the lease agreement itself.

  • What is the amount due as a down payment?
  • How long is the lease?
  • What happens at the end of the lease?
  • What is the mileage allotment, and what are charges for overages?
  • What is the residual value?
  • What happens if I must end the lease early?
  • Can the leasing period be extended?

Common Auto Leasing ‘Traps’

Over mileage
Often dealers will advertise exceptionally low rates, however with a very low mileage allowance and high overage charges.

Early termination
Dealers often claim they can end your current lease early and ‘roll-over’ into your new lease. This is very expensive.

Residual value
Dealers can sometimes vastly understate residual value, causing the price of the lease to increase.

Down payments
A low monthly payment is often advertised; however, this often requires a sizeable down payment.

Monthly savings
The dealer may show the difference in monthly payments between leasing and buying. However, you must remember, at the end of the lease you do not own the car, so keep that in mind.

Fees
Document fees, disposition fees, purchase option fees, license fees, and others may add to the total cost of leasing.

Few people find the leasing process straightforward but knowing a few of the common issues that can be buried in the fine print can greatly benefit you as the consumer.

Next, we discuss things to be aware of when buying a car.

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Posted on February 17, 2021 by in Auto Lending

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