When looking into a new car purchase, there are a plethora of “experts” that will let you know just how terrible leasing is. They will inform you of the foolishness of paying for a car you’ll never really own. They will probably have some horror story about the guy they know who ended up having to pay ridiculous mileage fees when they turned in the car. If any of these arguments ring a bell, you are not alone. These are just a few of the many standard arguments against leasing, and there is truth to each of them.
However, there are also serious advantages to auto leasing. These become extremely apparent if you can’t stand old cars, dealing with constant repairs, or you want a new car for a used car payment.
What is an Auto Lease?
Let’s get down to the basics. What makes lease payments lower than car payments? When leasing a car, what you are paying is the depreciation, or the difference between the purchase price of the car, and the residual (expected value of the car at the end of the lease term). The dealership will calculate this residual based on how well the model you are leasing tends to hold its value, making Honda and Toyota great leasing brands. This is also why leases have mileage requirements. The number of miles you allot
yourself per year will factor into the calculation, due to the effect mileage has on the value of a car. If you end up going over your mileage allotment, or you just really enjoy the vehicle, you can purchase the car at the end of the lease and avoid any extra dues. If you go this route, the used price of the car will be the residual that was set at the beginning of the lease. This can make leasing a great way to afford a new car, without having to pay on the entire value right away. At the end of the day, you aren’t paying for nothing; You are paying for that given vehicle’s best years.
What are the Perks?
Aside from the possibility of lower payments, leasing holds a few other advantages over traditional financing. Routine maintenance on the car is often covered, or can be at a discounted price, on leased
vehicles. This means not having to watch your odometer with a feeling of dread, or having to worry about a surprise $300 “check-up” on your fancy new car. Leasing will also build your credit just like a traditional car loan, except you are able to reap the benefits of your higher credit score much sooner, because lease terms usually last 2-4 years as opposed to a 4-6 year auto loan. This can result in even better prices on your next lease, or a better interest rate if you purchase the car outright at turn-in.
Auto leases can be a great way to save money or enjoy new car tech every few years, but at the end of the day, they usually require a decent credit score to be financially feasible. So, as long as your credit is around or above the high 600s, consider looking at lease terms next time you walk into a dealership. You may be surprised at how advantageous they can be. Stick with a mileage you can live with, take good care of your vehicle, and most importantly: Enjoy the ride.