This was a shift just as the economic downturn began, and leases have remained a popular option throughout the economic difficulties. However, leasing also comes with some disadvantages, and it's critical to consider the pros and cons of leasing a car when making a decision.
Pro: Lower Monthly Payment
There's a reason car commercials usually show the lease price, not the monthly payment on a purchase, and it's because lease payments on a vehicle are generally less expensive than loan payments. Because you're financing just the depreciation on the vehicle during the time you are in the lease, not the full value of the vehicle, you will have much lower monthly payments.
These low payments make it possible for you to drive a nicer car than you could afford if you had to finance the purchase price. The low monthly payments also provide financial breathing room for people who are trying to build savings in case of job loss or other economic difficulties.
Con: No Time Without Payments
When a lease is up, you are suddenly left without a car, and therefore you need to either lease another car or purchase a car to keep driving. Therefore, you're in a cycle of always making car payments. However, if you were to purchase a vehicle, you would have the option of continuing to drive it even after paying off your auto loan.
In fact, during the recession, people have been holding onto their used cars for longer than in the past, largely because of the appeal of not having to make any monthly payments after the loan is paid in full.
Pro: Fewer Upfront Costs and Maintenance Costs
Leases typically come with a "what you see is what you get" price. Drivers can often sign a lease with little or no down payment, which means that savings aren't required to get a new car.
In addition, leased vehicles are typically under warranty for the entire lease period, which gives the peace of mind that the driver is not going to have to pay for any major repairs during the lease contract. This freedom from unexpected maintenance costs is financially reassuring for many people who don't have much wiggle room in their budget.
Con: Penalties for Excess Mileage and Wear and Tear
You may be faced with some steep financial penalties when you finish the term on your lease, thanks to excess mileage fees and fees for excess wear and tear. Leases generally include between 12,000 and 15,000 miles per year, but if you have driven more than that when your lease is over, you'll be paying a penalty of anywhere from 10 to 25 cents per mile.
Therefore, if you have a long commute, you may be better off purchasing a car instead so you don't have the mileage cap hanging over your head. The other cost you may face at the end of the lease is a charge for anything beyond "normal" wear and tear. Any extra wear on the tires, brakes, and body of the car will cost you.
The decision of whether to buy or lease a car largely depends on your personal preferences. If you like the freedom of driving a new car every few years for a flat monthly cost and don't want the hassle of selling or trading in your vehicle, leasing is an attractive option. On the other hand, if you prefer investing now in an asset that you can keep after you're done making payments, you could be better off buying a car.
Gina Jennings works with Be Nice to Your Volvo, a leading dealer of new and used cars. For more information visit: http://www.benicetoyourvolvo.com.