Only your circumstances determine whether leasing is the best option.
Most important points:
- There is no one-size-fits-all answer to the question of whether you should lease a car.
- In some situations leasing is the best option, for example when you only need a car for a short period of time.
Some people think it never makes sense to lease a vehicle because you can’t build equity by leasing. Others say they only lease because leasing allows them to drive a car they might not otherwise be able to afford.
The point is whether leasing makes sense in your situation. Here we discuss when leasing is the best financial option for you, and some things to consider when deciding to lease a car.
How does a lease work?
Most people buy cars because they hope to own them one day. When a vehicle is leased, it is more of a long-term rental. The lease term can range from one to five years, depending on where the driver wants to land their monthly payment and how often they want to switch cars.
The permitted number of kilometers on a lease car is usually between 10,000 and 15,000 per year. Beyond that, the driver may end up paying an additional mileage allowance of as much as $0.25 per mile. A driver may also be charged for any excessive wear and tear on the vehicle. And, depending on how the lease is written, a driver who wants to get out of a lease early could be liable for all remaining payments.
While leasing certainly has its drawbacks, there are times when leasing is the way to go.
When does leasing make sense?
Because nothing in finance is black or white, there are situations where leasing is the way to go. Here are some.
If you like exchanging vehicles
If you’re someone who tends to keep a car for no more than two or three years, leasing is a way to trade-in when it’s time for something new. As long as you don’t put more than 10,000 to 15,000 miles a year on the vehicle, you won’t be hit by excessive mileage fees and you can leave money in the bank.
When you need a prestigious car
If you are a real estate agent or someone who regularly drives clients around in your car, you may be in need of a prestige vehicle. Since a lease only charges you for using a car, it’s likely you’ll be able to get a lower monthly payment for a “status” car.
When you need a vehicle for a short time
Whether you’re planning to move to a major city where you’ll be using public transportation, moving out of the country for a few years, or inheriting a vehicle from your grandfather, you may not need a car for long. If so, it may make more sense to lease a car for a year than to buy a vehicle that loses more than 10% of its value the moment it leaves the garage.
When lower monthly payments are essential
Let’s say you’re in graduate school and need reliable transportation, but your monthly budget can’t handle an expensive car payment. When the two most important features of the vehicle you drive are reliability and a low monthly payment, a lease usually offers both.
One thing that gives a lease a bad name is how expensive it can be to get it back to dealer. Before you decide to lease a car, read the fine print of the contract and ask yourself the following questions:
- Can I keep my mileage below the maximum allowed? If not, make sure you have enough money set aside to pay the excess mileage allowance.
- How long do I need this car? Never take out a lease for longer than you think you will need the car. And if you’re concerned that circumstances may change and you need to return the lease sooner, find out exactly how much it will cost you to do so.
- Who else drives this car? Let’s say your partner drives your vehicle occasionally and they are known for “bump parking” and generally don’t consider maintenance. Keep in mind that you will be charged for excess wear and tear on the car and plan accordingly.
While it’s a good print to state that no one should ever lease a vehicle, it just isn’t the case. In some situations, leasing is the best financial decision.
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