Step 4: Car Leasing versus Car Buying
Before decide either to buy a new or used car, leasing may come into your mind. This is because there are many people out there keep shouting “Leasing is much better than buying, just leasing, don’t buy it!” Yes leasing is another choice other than buying a new, used, repossessed, impounded, or auction cars. Car leasing brings a lot of advantages and also disadvantages. Therefore, you have to evaluate it according to ability, usage, and budget.
What is car leasing?
Leasing is where a lease company or car owner (lessor) provides vehicles for leasee to use it for a fixed period of time. Leasee has to pay the monthly lease payment according to the lease contracts and agreements. Leasee has to determine the leasing period and also the affordable monthly payment. Often, the monthly payment shall not over 15% of the net income.
Advantages of car leasing
- Low down payment: Low up-front amount compare to buying. A $24,000 Toyota Prius may requires $5,000 for down payment if you are buying it, but it only requires $3,000 for leasing.
- Low monthly payment: Monthly payment for leasing is lower than buying. This is because the company can lease the vehicle to someone else once your contract end. Low monthly payment makes exotic or luxury cars become easier for more people. It could be hard for many people to buy a Porsche 911 Carrera S at $96,400 but dream could become true with monthly lease installment at $1,500.
- Car maintenance: Lessor will responsible for the maintenance and leasee pays nothing for anything that wears out over the time. This may include timing belt, car battery, all fluids, coolant, spark plugs, tires or brake pads. However, almost all the lease contracts will include Excessive Wear and Use. Leasee will be charged for excessive wear based on lessor’s standards, for example, $10 for an extra mile on the odometer. Leasee will be charged extra if a car requires new tire replacement every three months which are unreasonable.
- Good for business: Leasing may be something good for business owner in certain situations. Whoever needs a car for short-term, leasing is always be the first choice. This is because the monthly lease payment can be written off as business expenses. Besides, lease terms are usually set at a minimum of 24 months and this is much shorter compare to a 5-year loan. If a business suffers profit drop, the car can return to lessor anytime. But the car cannot return to anyone if you own it. There are also many short-term leasing in the market, but it could be expensive due to the vehicle’s depreciation happens in first two years.
Disadvantages of car leasing
- Ownership: The car will never, ever belong to the leasee regardless of how much money he has paid. The car will have to return to lessor by the end of the lease. It means leasee will get nothing in the end of the day. Leasee will not be able to resell the car for money.
- Limited mileage: This is one of the problems with leasing a car that many people overlook. Lease car comes with a limited mileage, any extra miles do count. Leasing companies usually offer up to 12,000 miles a year. This means you cannot simply drive the car from Las Vegas to Miami as many times as you wish.
- Personal enjoyment: If you love cars you will lost your personal enjoyment to modify the car or customize your own car. No modification or any air brushes are allowed on the lease car.
- Finance rates: Leasee cannot refinance the lease loan in the same way a normal loan might be refinanced. The only thing you can do is to contact your lease company and ask for assistance.
- Extra fee: Extra cost will occur when leasee wants to terminate the lease before the contract ends.
Things you may not know about leasing
- There is always a purchase option for leasee at the end of lease term. The price will usually state in the contract.
- Lessor or leasee is able to terminate the contract under certain circumstances agreed by both parties.
- This is also late payment charges if leasee do not pay it on time.
Leasing or buying has some similarity. You may pay less every month for leasing but you only use what you pay. Limited mileage is one obvious thing. Buying may sounds harder every month but you own the car in the end of the day and you can resell it for money. What is your preference?
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