Last Updated on March 9, 2021 by Filip Poutintsev
Whether it’s your first car or your fifth, buying a car is a significant investment. There are multiple brands to choose from, each with unique designs and dynamic features. However, buying a car is a complex process that requires a long time commitment. Another option is to lease a car.
Leasing a car allows you to buy new cars without dipping too deeply into your savings. Moreover, it makes the process of owning a car much easier and hustle free. You don’t need as much commitment as buying a new car and you get to save money at the same time.
So What Does Leasing a Car Mean?
Basically, leasing a car is similar to renting vehicles. You make payments within a certain time period, which is, usually, 2-3 years. At the end of the time period, you decide whether to buy the car from the dealer or get a new one. If you’re contemplating whether to lease a car or not, you first need to be aware of the two types of leases, which are closed-end lease and open-end lease.
With a closed-end lease, the car’s value at the end of your term is estimated and paid beforehand. If the car’s value is lower then estimated residual value then no further payment is required. However, extra mileage and any damage to the car means extra fees. Generally, there’s an option to purchase the car at the end of the deal.
But, in an open-end lease, you will have to purchase a car when the deal runs out. Comparatively, you will have lower monthly payments and won’t have to worry about any extra mileage or wear-and-tear fees.
A Brief History of Leasing Cars
The concept of leasing transportation dates back to around the 1700s. Typically, horses, wagons or buggies were leased. By 1870, leasing trains and railroad cars began. Zollie Frank made long term leasing of cars official in 1914.
Finally, in 1918, the company Rent-A-Car started the first modern leasing of cars. From then on the popularity of leasing cars began to spread amongst the business owners as well as the buyers. By the 1950s, Hert, Avis and National car rental provided short-termed leasing facilities.
As of today, leasing cars have become significantly popular amo6 the younger generation. According to the Lease Market Report from Edmund, in the U.S, leasing a car doubled its popularity over the 5 years in 2017. Also, in the U.K, the popularity of Personal Contract Hire (PCH) grew by a massive 77% between the years 2015 and 2016.
Pros and Cons of Leasing a Car
Just like every issue, leasing a car has its pros and cons. Although it sounds appealing, there are many factors to take into consideration. Basically, leasing a car is not for everyone. Be sure to understand these pros and cons of leasing a car before you reach your verdict.
Advantages of Leasing Cars
1. The Monthly Lease Payments are Lower Than Loan Payments
Compare the monthly loan payments and the lease payments for a car, it can be easily concluded that lease payments are significantly lower. In fact, 75% of luxury cars are said to be leased. You might wonder, why? It’s, simply, because banks only allow a maximum loan of 30,000 dollars. If you want cars with significantly more price, you have no other options. Leasing a car allows you to drive expensive cars at much lower costs, almost 60% lower.
2. You’ll Get a Modern Car Every Few Years
Perhaps, one of the biggest perks of leasing a car is having an opportunity to get a new car when your term ends, which usually lasts 2 or 3 years. You can choose a new up-to-date car equipped with the newest technology and safety and, at the same time, get a new-car warranty. If you are someone who loves cars and taking rides, leasing a car is, possibly, the best option for you.
What if you get mechanical problems in your car shortly after your warranty ended? You would have to pay a huge amount of money to fix your car. It’s time-consuming and stressful at the same time. Typically, with leasing a car you’ll still have a warranty even when your term ends. You would still have to do regular maintenance by yourself but it saves you from costly repairs.
Disadvantages of Leasing Cars
1. No Ownership
One of the biggest drawbacks of leasing a car is that you don’t own the car. As mentioned before, leasing a car is just like renting a car. Suppose, you spill a drink and now want new seat covers or you want to customize the car. If the car is leased, you won’t have the liberty to modify however and whenever you want. Instead, you will have to pay wear and tear fees at the end of your deal.
2. Limit On the Mileage
When you make a deal, the dealers include a certain mileage limit. Suppose, your mileage limit is 70,000 miles for the duration of 3 years. If you’re successful in keeping the mileage below 70,000 miles, you won’t have to pay any penalty nor do you get any credit for the saved miles. However, if it’s over the limit then you will have to pay a penalty for every extra mile. This, obviously, keeps you frustrated and concerned most of the time.
3. Expensive in the Long Run
Leasing is much more expensive than buying a car in the long run. You’ll be drowned with endless payments. Instead of spending so much on leasing a car, it would be much more profitable to buy a car. You would, at least, have the liberty to sell the car whenever you want to and get the profits too.
To conclude, whether you want to lease a car or not solely depends on your personal preferences. Although leasing a car allows you to ride the newest and the most expensive cars, you’ll always be under certain restrictions.
Ultimately, buying a car becomes cheaper than leasing a car. It’s important to take your financial conditions and personal values under consideration before actually proceeding to make the final decision.