Car Leases have a poor reputation. But are vehicle leases always a bad deal? You may be surprised.
Why do leases have a bad reputation? There are two primary reasons. Many consumers didn't read the fine print and got stuck with bad terms. Also mileage limitations have limited the usefulness of the leased vehicle. My father leased a truck for his business and it ended up sitting in the garage because he was afraid to run over his mileage limit.
A recent article on MSN Money about car leases made me take a second look at leases. My parents are considering leasing a vehicle, so I decided to do some home work.
Leases aren't a bad deal if you're going to drive a new car anyway. Buying a new car every year is not the best idea for most people. However, if you're one of those types that needs a new vehicle every few years, then leasing may be for you.
My parents considering leasing because the vehicle they want to buy depreciates so little and a used model is not much cheaper than a new one. They also want the lowest payment possible. A monthly lease payment is usually less than a loan payment.
According to the MSN article:
[I]f you leased a new Chevrolet Malibu LTZ for three years, your monthly payments could be $489. When you turned in the car at the end of the lease, you'd pay a "turn-in" fee of $395 and then walk away. If, however, you bought the Malibu with a five-year loan at 7.9%, your monthly payments would be $546, and after five years you'd own the car free and clear.
In my parents' case, the difference is over $100/month.
You can add additional mileage to your lease. It's much cheaper to do it up front than to pay the mileage on the back end. My parents are adding an additional 3,000 miles to their yearly lease for a reasonable price.
You can negotiate lease terms. The conditions of the lease aren't written in stone. You can and should negotiate with the dealer. For instance, you may be able to include things like a remote starter and other extras.
There may be tax advantages to leasing. Business can deduct the lease costs as expenses. However, businesses can also deduct interest expenses and can use a standard mileage deduction. However you can't use both.
The Decision
I would personally never lease a vehicle. But that's just my opinion. Your situation may vary. Here are some criteria that may affect your decision:
- Are you comfortable with older cars or do you like to drive a new vehicle?
- How many miles do you drive each year? Track your mileage and make sure your lease terms would allow you to drive at least that amount. Are you going to change jobs or homes anytime soon? You may want to keep that in mind.
- Do you maintain your vehicles well? If you have young children or pets, you vehicle may get a lot of wear and tear. If you have any excessive damage (stains, rips, cracks, etc) you'll probably be charged for it.
- What interest rate can you get? If rates are high, a lease may be more attractive. However, if you can get a 0% interest or other low rate, buying may be a better option.
If you decide to lease, make sure you read the fine print. You really need to understand what you're getting into. The reason leases have a bad reputation is mostly due to people not understanding what they're getting into.
You're signing a contract for 3 or more years. You can trade or swap leases at sites like http://www.leasetrader.com/. However, don't count on just walking away from a lease anytime you want.
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