Leasing, as some have observed, is a fundamentally different way to buy a car. It lets someone who needs a car enjoy the benefits of ownership without having equity when his or her lease term ends. Leasing means you’re not buying the car so much as paying for the privilege of driving it.
Right now leasing is becoming more and more popular, with almost one-third of new cars being leased instead of bought outright. Let’s look at the pros and cons of leasing a new car.
Defined Monthly Payments
There’s one way that leasing turns the car-buying experience on its head. You shop by monthly payments. When buying a car outright, that’s a horrible idea, because you can get tricked into paying way more than you should.
However, with leasing you’re purposely setting a monthly figure you can afford, knowing that there is a defined term of payment. Dealers will find out how much you want to spend and then tailor the length of the loan to meet that number. With a lease you know you will be spending $400 a month for 36 months, for example.
You Don’t Own the Car
After the lease term is up, you have nothing to show for your money. Some people won’t be comfortable with that. Plus, you’ll have to pay a pre-determined price if you decide to purchase the car—a price that was set 3 years before, when you first leased the car.
Pro: More Car for Your Money
Basically, you’re paying for the expected depreciation of a vehicle over a set period of time. That means you’ll be able to get more car for your money. A 36-month car payment on a $30,000 loan, assuming a 2.9% loan, would be $857.50. That could put you in the market for a nice Nissan Maxima, for example. That kind of lease payment, though, would put you in the market for a more upscale BMW, Audi, or Mercedes-Benz. (You will need similar down payments for the lease and the purchase.)
Con: You Can’t Modify the Car
Say you want a new sound system for your car—you’re out of luck with a lease. The car has to be returned in the exact same condition as when it was originally leased. Sure, there are some allowances for minor wear and tear, but you’d have to restore the dashboard and re-install the original sound system. Otherwise the dealer could charge you for restoring the car to its original condition—or keep the sound system with no financial reward for you.
Pro: A New Vehicle Every 3 Years
You’re rarely going to have to worry about maintenance and problems with the young car that you will be driving. In effect, your car should be well within its warranty coverage for practically everything that could go wrong.
Con: Mileage Constraints
Leasing contracts require that you drive no more than a set number of miles. That’s how the lenders determine the projected depreciation of the car. You will be charged penalties if you exceed, for example, 36,000 miles. Those penalties could be anywhere from 20 cents up to 50 cents a mile (or higher), depending on the vehicle.
Weigh the pros and cons of leasing. It’s not right for every buyer, but it could be just perfect for you.
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