Potential Pitfalls When Buying a Car - Leasing May Not Be the Right Choice
When Leasing a Vehicle may not be the Right Choice
Now that the average price of a new vehicle exceeds $38,000, monthly car payments can be relatively high unless you extend the term of the loan or make a sizable down payment. As a result, leasing has become much more appealing for some consumers as the monthly payment for a leased vehicle is typically lower than an auto loan. But it may only make sense to pursue this option if your driving habits meet the following criteria:
- You don’t use your vehicle for commuting - How much mileage do you usually put on your car each year? When leasing a vehicle, there is often a mileage limit, which could be as low as 12,000 miles per year. And, if you exceed this limit, you could pay a sizable penalty – as much as $.20/mile! For example, if you drove 15,000 miles, you could pay as much as $600 for that extra 3,000 miles that you put on your leased vehicle!
- You prefer to have the latest and greatest in technology with the car that you drive - Most leasing agreements are limited to 3-years whereas a car loan is typically 5-6 years or longer. If you like to drive a vehicle with the latest features, leasing may be appealing because you would typically turn in the vehicle at the end of the term, unless you choose a buy-out to keep the vehicle. And because you’re driving the vehicle for a relatively short period of time, you may not incur much additional expense related to maintenance because the vehicle may still be under warranty during the entire lease agreement.
- You keep your vehicles in pristine condition - At the end of the lease term, the vehicle must only have experienced “typical” wear and tear, otherwise you could pay penalties for the condition that the vehicle is in when it’s time to turn it over to the dealer. Are you the type of driver who washes, waxes and vacuums your car on a regular basis or do you usually let fast food bags, toys, crayons, sports equipment, pet products, etc. hang around in your car for a while after you’ve used them? Any items that could detract from the smell or interior/exterior maintenance of your vehicle could cost you in the end when the vehicle is inspected by the dealer when it’s turned back in.
Generally speaking, the best alternative is to buy a vehicle and then hold onto it as long as it’s still economical to maintain it in relation to the car’s value. Most Americans appear to follow this approach as the average age of a vehicle on the road in the US is now over 12 years! By contrast, with a lease, you would have changed out your car four times within this same time period, if you turned in the vehicle and replaced it again at the end of each agreement. Something to think about, not just for the short term but over the long haul too…