Grew up on Cape Cod, Mass. Army Vet., Fmr. Director of Energy Conservation programs, RE Agent. Current residence: the Space Coast, FL.
How Leasing has Evolved
Years ago, leasing was reserved for high-end customers and corporations of means, but today it’s found in every segment of the car industry—almost anyone with decent credit from new college grads to families of ten can qualify. As vehicles get ever more expensive, the number of people who lease steadily grows. Leasing now accounts for nearly a third of vehicle sales.
Despite this, the majority of new vehicle purchasers still take out a car loan to buy the vehicle rather than lease. This means the likes of Hertz and large corporations make up the majority of vehicle lessees.
Pros of Leasing a Vehicle
A new vehicle lease payment can be half what your monthly payments would be if you were purchasing the same vehicle and financing it with a traditional personal auto loan.
In addition, the warranty for a leased vehicle covers everything (not directly related to driver abuse/negligence) for the duration of the lease. For those who have owned a car in the past, you likely know how frustrating it can be when your relatively new vehicle, that you are still making payments on, has a major mechanical problem shortly after the warranty runs out.
Leasing is a plus for people who like to have the latest tech and gadgets, people who drive fewer miles than average, and people who don’t want the concern of vehicle break downs and repair costs that come with owning an older vehicle.
Cons of Leasing a Vehicle
You must have a stable and consistent source of income to qualify, you are limited to a set number of miles you can drive during the course of the lease, typically between 9 and 15,000 miles depending on what is chosen by you during the lease negotiation, the higher the mileage the higher the cost to you. Going over that set amount can be costly, and leave you with a substantial sum to payout at the end of the lease.
In most cases, you must purchase gap insurance (discussed below), which is additional cost, you will want to research just how much it will be for you given the vehicle you are interested in, and the state you live in.
A lease is also harder to get out of than a vehicle you purchase which you can sell or trade in for another vehicle (wrapping the old car loan into the new loan). In addition to all of the above, you will be required to stick to a normal maintenance schedule, or it can cost a lot extra in ‘penalty’ fees.
Pros of Buying a Vehicle
You don’t have to worry about the damage, spills, tears, dings, etc. You can drive as many miles as you want without extra costs being added on (of course the higher the miles, the more you likely have to spend on maintenance when you own it).
You can customize it to your heart's content. Insurance costs will likely be lower and no gap insurance is required.
Cons of Buying a Vehicle
You are always going to have higher monthly payments for the same vehicle if you buy it, rather than lease it, often twice the amount. And you could be stuck paying for post-warranty repair costs that would be covered under a lease.
The financial burden that comes with buying it could last 72 months or longer on a loan, and should your financial situation change during that time, you may not be able to get out of that loan by trading the vehicle in or recouping your money by selling it.
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When you buy it, you will be paying for everything that goes into it, maintenance always, and repairs as soon as its warranty runs out.
Insurance Considerations: Leasing vs. Buying
It is important to understand the insurance implications of both options. Certain coverages may be required by law or by your lease, where those coverages may be optional when you purchase depending on whether you get a loan or whether you buy a vehicle outright.
You’ll often have spend more for a policy if you lease a vehicle than you would if you bought a vehicle and opted to purchase your state’s minimum liability coverage. This is definitely something you need to factor into the overall costs of Lease vs. Purchase.
Short-Term vs. Long-Term: Consider Your Needs Today and in the Future
There are very few things that are more satisfying than owning or leasing a new vehicle that you really wanted.
It gives you the freedom to go where you want to go, when you want to go there.
I owned cheap rides when I was young, old cars that were easy to fix on my own. I have owned brand new ‘state of the art’ all bells and whistles included cars as well. I have had short term rentals and vehicles I owned for a decade. With that said, here are some things I believe you should consider:
Assess what your needs are, what you can really afford, and where you expect to be one year, two years, three years from now.
Personal Examples and Experiences
When I was in the Army, I was often deployed, I obviously couldn’t drive the vehicle I owned when I wasn’t there. Unfortunately for me, one time when I was gone my vehicle was driven by someone who I left a spare key with, that person got in an accident while I was away, the vehicle was wrecked and I couldn’t go to my insurance about it.
Had I properly assessed my situation, I would have purchased a very cheap vehicle that was good enough to get around in when I was there to drive it, and nothing more. That way, even if it was stolen, or wrecked, it wouldn’t be a costly loss.
A few years back, prior to making a major move from one state to another, I was driving a vehicle that I had owned for almost a decade, I owned the vehicle outright (title in hand). The fact that there were no car payments to make made it far easier to transition from one State to another, one job to another, without the burden of having to make loan payments.
In the end however, the vehicle cost as much to maintain as if I had payments to make, as I had to replace a starter, a radiator and buy new tires prior to the move, and then shortly after the move was complete additional repairs were required.
In total over two thousand dollars were spent in less than 12 months, which would be equivalent to a lease. I should mention registering the vehicles in a new state was a lot easier because I had title-in-hand, I am not sure I could have even managed that had there been a loan and title registered in another state.
Today I own a EV, I had owned a rather new vehicle that had just gone over 50,000 miles which voided most warranty items, and wouldn't you know it, suddenly it had major issues. When I took it into the dealership find out what was wrong, I was told there would be a few thousand dollars in repairs.
I decided that would be a great time to trade the car in, and switch to an EV. I will never go back to owning an ICE vehicle. Not having to pay for repairs or stop for gas has been a bigger boon than I had imagined it would be. I literally save myself hundreds of dollars a month not paying for gas and maintenance.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2017 Ken Burgess