When you lease a car, you only pay for a portion of the car’s actual cost while acquiring a new or used car. So, if you are leasing a car, then you only pay for that portion of the car that you have used over the years of your lease agreement. Many people choose to lease a new car, as it allows them to get a higher value car while not being required to pay the whole price of the car.
Though leasing has been growing in popularity, it has its own set of considerations. The advantages and disadvantages of leasing should be fully understood before signing on the dotted line. Here are a few of the pluses and minuses of auto leases that should help you in understanding the car lease process better.
What are the Pros and Cons of Auto Leases?
Pros of Leasing a Vehicle:
Lower Monthly Payments
Car leases may have lower monthly payments than auto loans. In addition to lower monthly costs, car dealers sometimes offer lease specials to aid them in moving the new vehicles off their lots.
Calculate your monthly car payment!
A Brand New Car More Often
If you buy a car and end up not liking it after a few years, you are stuck with it. If you lease a car, though, you can easily trade that car for something else once the lease terms are up.
You Pay Only for a Part of the Vehicle Cost
While leasing a car, you only pay the difference between the car’s current price and its expected value at the end of the lease agreement terms. This difference is referred to as residual value. According to the resale history of your car, the dealer then determines the value of the car at the end of the lease.
For example, you are purchasing a car that has a current price of $40,000. The expected value by the end of the lease is $17,500; your payments then will be based on the remaining $22,500.
Future Price of the Car is Set
The resale value of your car is predicted and put in writing as a part of the lease agreement. If the decline in value of the car is much faster than predicted, it will have no effect on the lease agreement. This can be beneficial for you if you decide to purchase the car after the end of the lease.
Cons of Leasing a Vehicle:
At the End of the Lease, You Do Not Own the Car
Once your lease is up, you will not own the car. You’ll either have to finance it outright or trade it in for a new lease.
Mileage is Limited
Some of the leases are limited to 10,000 to 12,000 miles annually, and if you do go over the limit, you will have to pay for each extra mile at the end of the lease agreement.
Wear and Tear is Your Responsibility
Once the lease ends, the car should be returned in good and non-altered condition; you will be responsible for any damages.
Leasing Can Be More Expensive
If you fall into the loop of leasing one car after another, then you may end up paying more money in the long run than if you had just purchased a car.
Early Termination is Costly
If you do not like the car you leased, or for some reason are unable to continue the lease agreement, and you decide to break the contract, you may be required to pay a fee.
Got questions about buying a car? Ask us!
Get the Car you Need With First Alliance Credit Union
If you are planning on leasing a car, it is better if you know the differences between purchasing and leasing. So before you lease a car, brush up on the pros and cons of leasing and do your research on lease agreements for vehicles.
