With so many new styles and features that continually come with new vehicles, it can be tempting to play the leasing game. Leasing a car allows you to get a brand new car, or used, with just a monthly payment.
Sounds great, right?
Not so fast.
While leasing a car may come with a lower monthly payment than perhaps paying for a car all upfront or taking out a loan, it is often considered a very unwise financial decision. Why? Here we share six reasons why leasing a car is a terrible financial decision.
1. Mileage Limits and Fees
If you tend to put a lot of miles on a vehicle, leasing a car may get you a penalty. Most leasing companies charge you an extra fee if you exceed a certain mileage limit. Knowing up-front how you plan on using the car – whether for short distances or long trips – can help you make the right decisions when it comes to your vehicle decisions.
Another added fee that can potentially be added on with a lease is excess wear and tear on the car. If the dealership from which you lease the car determines that the wear and tear you’ve put on the car is excessive, you can be charged a hefty fee. Knowing what is considered “normal” wear and tear and excessive can help you avoid such extra fees.
2. The Payments Keep Coming
When you buy a car, you may have monthly loan payments you’ll need to take care of. However, those payments won’t last forever. Eventually, through discipline and wise spending, you’ll be able to pay off that car loan and stop making payments on it. But with a car lease, the payments don’t stop. Every month, you’ll continue to pay the same amount, or more if your plan increases. As long as you have a lease agreement, you’ll be paying that monthly amount, every month.
3. You Can Get Better Financing for Buying
If you expect to want to keep the car for a long time, rather than just a few months, you can find much better financing options in purchasing it for yourself. With loans through banks and credit unions, the opportunity to get a better rate for what you pay is greater when purchasing a car rather than just in leasing one.
4. You Don’t Actually Own Anything
When you buy a car, it’s yours. It’s something that you own and is in your possession. But with a lease, after you make those monthly payments, you’ve only gained the opportunity to use the car. You haven’t actually purchased anything other than the right to use a vehicle. When it comes time for a transition and into a new vehicle, you can’t sell your leased vehicle for your own profit. You don’t own the car, you’re just borrowing it. Since you can’t account for this value for yourself, it’s often considered an unwise financial decision.
By owning a car, you gain an asset, even though it depreciates in value. But when it comes time to selling and transitioning into a new vehicle, you’ve got the opportunity to sell and keep the profits yourself.
5. Higher Insurance Costs
When you lease a car, you’re limited in what insurance coverage you can get. This restriction then may lead to higher insurance payments. Typically, leased vehicles require more coverage than what you would typically get. When you buy a car, you choose which insurance you place on your car.
6. Limitations on Improvements
If you want to add some extra decal or feature to your car, you may be limited on your choices for a leased vehicle. But with buying a car, you choose when and how you want to bring improvements to your vehicle. And, even with a warranty on your leased vehicle, you still may be responsible for other repairs and wear and tear.
If you want an upgrade to your vehicle before your lease is up, you may be responsible for a fee. Whether you’re just looking for something new or have life circumstances that change, leasing a vehicle locks you in for a set period of time, without any additional fees or broken contract issues.
Leasing – Choose Wisely
Leasing a vehicle can fit some lifestyles, such as those who want the latest and greatest vehicles for short periods of time – and having some additional spending money. It may also be helpful for those who need a car for just a very short time and wouldn’t make sense to purchase a vehicle. But even though the appeal of the newest vehicles seems appealing, leasing comes at a great financial cost in the long-term. Before signing that three-year deal, make sure it’s the wise decision for you.