Buying a vehicle is an overwhelming process for a number of people. Unless you are lucky to live in an area that has great public transportation, having a car is a necessity. One that is reliable and priced affordably. Because of a car’s rapid depreciation, it is always best to buy used. However, there is no denying the new car smell is appealing.
Cars have increasingly become more expensive to both buy and often times repair. This has made the option of purchasing a new one out of reach for more people. With skyrocketing new automobile prices, car dealers will sometimes mention a lease as an option. They point out the lower payment that often times is more affordable to drive off in a new car. Buying a new car in almost all instances is not a good financial decision. Leasing one to drive away is an even worse idea and there are a number of reasons why.
New Car Advertisements
I never have quite understood how car dealers get away with their advertisements. Sure, they will disclose the terms. But it is always in fine print. The kind that requires magnifying glasses. If it is read, the bad deal is always listed there. It may also be communicated by the world record holder of fast talking.
It always seems with car advertisements when they offer these great deals with low payment’s they are always a lease. They may not say this in the advertisement, but it is listed in the fine print to get people in the door.
The real issue with many car dealerships is they prey on people that may be struggling, have bad credit, and not much education when it comes to buying a car. Leasing is many times the hook line and sinker due to the up-front possibility of it being more affordable. Do not fall for the sales tactics and stories of a great deal. Why is leasing a car such a bad idea?
1. You Will Always Have a Car Payment
Want to get out of debt and stay out of debt? Having a continual car payment is a sure way to stay in the hole. When a car is leased it is many times for a term of 3 years. At the end of this time period it’s time to turn the car in and get another lease.
Leasing an automobile with a payment has nothing to show for it when the lease term is complete. You are basically renting a car for the term of the lease. If a used car is purchased, there often times is some value left to sell it in order to get into another used vehicle when the time comes.
2. Lease Requirements
When leasing car dealers will require a down payment 99.9% of the time. This down payment will cover a portion of the lease up-front. I realize that sometimes car dealers will advertise zero down payment for a lease, but this will likely require absolutely perfect credit and almost no one will qualify. It is a tactic they use to get buyers in the front door. If you do get lucky to not have a down payment, the leasing company will make up for it someplace in the lease terms.
Lease terms always come with mileage restrictions. This will limit the amount of driving time in a leased car to 10k-12k miles per year. Leasing can have the option to put more miles than this on a vehicle, but there is an extra cost.
When a lease is finished and the automobile is turned in, there will be an accessed charge for every mile over the miles given in the leasing terms. Depending on the miles the car is driven, this can get expensive.
One of the big issues with a mileage limit is life changes. If you currently have a commute to work of 10 miles a day, there is no guarantee that in a year it will be the same. Job markets and the economy change. There is always the possibility that more miles will need to be put on a lease than originally planned for.
The dents and dings over the lease term are also evaluated which can result in charges. The careless people that park next to that shiny new car and ding the door or the lazy people that never return a shopping cart will all cost you money at the end of a lease.
A leased car still needs regular maintenance. There is no difference when buying used or leasing when it comes to car maintenance. It still needs to be done. A car dealer/leasing company may offer free oil changes during a lease, but this is not even close to free. There is always a charge hidden someplace that will cover anything supposedly thrown into a lease deal as an added bonus.
The insurance premiums on a lease vehicle is something typically not considered. There may be a requirement for something called GAP insurance. This is insurance that will cover the amount owed on a car and the actual value of the vehicle if there is an accident.
Also, insurance with a lower deductible may be required on a leased auto. The leasing company wants to ensure repairs on a vehicle in the event of an accident. An insurance plan with a high deductible would be more out of pocket money for the person leasing the car and they may not be able or willing to pay this. A lower deductible protects the leasing company and their lease.
Insurance may also be higher due to the leasing terms requiring only Original Equipment Manufacturer (OEM) parts being the only choice in the occurrence of an accident. Aftermarket replacement parts almost always are less expensive. However, the leasing company wants to ensure a vehicle involved in an accident is brought back to the most original state. This helps make certain a lease car has value when it is turned back in.
3. The Car Dealer and Leasing Company Always Win with a Lease
Like any business, car dealers are there to make money. This is understandable with any business looking to make a profit or even sometimes ones that claim to be non-profit. Not so understandable in the last one, but it does happen.
With a lease, the car buyer is set up from the beginning to pay more for the vehicle. When a car dealer takes the car back at the end of a lease term more payments have been made on it than it has depreciated. This is partly due to their mileage restrictions. The condition of a car will also be taken into consideration, but if there is damage the car dealer will get paid for this. Even a damaged auto, the leasing company will still win.
Once the lease has been turned in, a dealer will then either sell the car to the person that leased it or to someone else. A buyout option will be offered to the person that leased the car and this will be an amount that is much more than the automobile is worth. Either way, the leasing company will make money at this point when a lease is turned back in. This is in addition to the money they already made on the lease.
The truth is car dealers make much more money leasing a car than they would be selling one for cash.
The interest rate is not disclosed on a lease. A lease will have a money factor instead of an interest rate. This money factor should be dependent on someone’s credit, but hiking this figure is good for the dealer and company leasing the vehicle. Money factors are shown in fractions. This can be confusing to someone leasing a car and even what may seem like a small amount can amount to thousands of dollars.
It is crazy to think, but the federal government does not require a dealer to disclose the interest rate on a lease. They do however require it on an auto loan. With a lease, the interest rate is almost always higher without the person leasing the car knowing exactly what they are paying.
Just Don’t Lease a Car
Leasing an automobile is just a losing proposition in almost all cases. The leasing terms in combination with finance charges are great for a car dealer and the company leasing a vehicle. They regularly make much more money on leasing than they will be selling a car for cash or even financing a traditional car loan.
The limited mileage on a leased car, higher insurance premiums, and the real unknown expense factor when the lease ends makes it a bad idea for a person that wants to stay out of debt. Life changes happen that may require a car to be driven much more. Owning a vehicle outright is always a better choice.
With a job loss and not being able to make lease payments can also make matters much worse. The car will have to be turned in with nothing to show for it just like a traditional auto loan. In addition, when it is turned back in if it has excessive mileage or damage, the added costs will additionally be due. If you are lucky, you might be able to find someone to take over the remainder of the lease. If not, this will come out of your own pocket. Early lease termination fees are often the remainder of the lease. Once this is paid, a car has now been paid for that can’t be driven.
A Better Car Buying Choice
The better auto buying choice is to buy used and pay cash. Don’t fall for the lower payment new car sales tactics. Moreover, don’t ever get into a “car payment” discussion with a car dealer. They will find a way to fit a person into a car payment that is at their advantage. Always discuss price only. The best practice may even be to talk finance rate and price. Then, pay cash for the car.
Car buying is never fun in my opinion. It is exhausting and time-consuming. As long as car dealers are able to advertise on a thin line of deception, they will always have the upper hand. Unless a person takes the time to gather as much information as possible to avoid the pitfalls of sales schemes that are less than truthful, a car leasing deal will be a disaster.
If you are the type of person that must have a new car, save the cash to buy one. Do not ever lease a car.