Car shoppers often ask the question of car lease vs buy. There are several benefits and downsides to both leasing and buying a car, and each choice tends to fit each situation differently. By looking at the specifics of both potential choices, you can apply their benefits to your own particular situation, and end up with the choice that suits your needs best.
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Benefits of Buying
When buying a car, once you pay your loan off, the car is yours. This means you can do whatever you want to it and modify it as you see fit, and the only real penalty is a reduced resale value. When buying a car, you always have the option of selling it should you grow tired of it, and conversely, should you truly fall in love with your car, you can keep it as long as you'd like.
Benefits of Leasing
Compared to buying a car, a lease can result in lower monthly payments, as well as a lower down payment requirement, or sometimes none at all. Because of this lower monthly payment, you can often afford to lease a far more expensive car than you would be able to purchase, and because lease terms tend to only last two to three years, a new vehicle that is leased is almost always covered by the manufacturer's warranty. For those who tend not to get attached to their vehicles, a lease is perhaps the perfect arrangement; you get to drive a new car for the best years of its life and then when the lease is up, you can move on to another car without having to worry about trade-ins or selling your car. For those interested in buying, a lease purchase deal can give you the option to purchase the car for a reduced price at the end of the lease term.
Downsides to a Lease
While both leases and purchases have a monthly payment attached to them, the upside to purchasing a vehicle is that once you have paid off the loan, the payments stop. With a lease, you will perpetually have car payments and never have anything to show for the money spent. A purchased car can be sold to recoup some of the cost, while a leased car is simply money spent. In addition, leases generally have limits on how many miles you can drive per month or year; exceed these limits and you may be charged a penalty per mile. Lease vehicles tend to require far more rigorous maintenance, and excessive wear and tear can lead to extra charges. Should you want out of your lease early, you may be stuck paying expensive penalties that can cost almost as much as it would have been to simply keep the car to the end of your lease term.
Are Car Lease Interest Rates Higher or Lower than Auto Loan APRs?
Car lease interest rates are often higher than auto loan APRs. This occurs because car lease interest rates are expressed as money factors, which are not often clearly advertised to potential buyers. For example, while finance companies or auto manufacturers may advertise 0% APR offers on auto loans, car lease money factors are in a more constant state of flux. Additionally, other fees such as acquisition or disposition fees can be lowered in exchange for charging higher car lease interest rates. In order to get an idea about car lease interest rates, you should contact a dealership and ask about the current money factor for cars in which you are interested.
Are there Any Fees Involved with Auto Lease Returns?
Yes, there are often fees involved with auto lease returns. The most common fee involved with the return of a lease car is the disposition fee, also known as a disposal fee. The fee can range from $200 to $600 depending on the finance company through which your car is leased. This is often an unexpected expense, as finance and insurance personnel at dealerships may not disclose this necessary charge to buyers out of fear it could compromise the deal being negotiated. Other fees during auto lease returns stem from excess wear and tear on the vehicle that is discovered during a third party inspection by the lender.
Where Can I Lease a Car?
When considering where to lease a car, consider the type of vehicle you want to lease. Although new car leases are most common, limited leasing options are available with used cars as well. Both new and used cars are traditionally leased directly at car dealerships, where a lease transaction is negotiated, just like a new or used car purchase. In addition to getting a lease at a dealership, you can also find vehicles available for short term lease on websites like SwapALease.com and LeaseTrader.com, which put lessees who need to get rid of their current cars in touch with those who need to assume a lease.
How Much Money Should I Expect to Pay in Car Lease Fees?
Common car lease fees vary between lenders, but there are some common car lease fee amounts you should consider before visiting the dealership. The acquisition fee is a startup fee that is often rolled into the initial down payment made at a dealership. If you choose to start your car lease with no money down, the acquisition fee is rolled in to your monthly payments. A documentation fee may also be charged at the start of the lease, although the documentation fee is set by individual dealerships and not finance companies. As such, this amount can vary. At the end of the lease, a disposition fee may be due upon lease return. All told, the sum of common fees can range between $1,000 and $1,500 depending on the finance company.
Is a Down Payment Required for a Car Lease?
No, a car lease down payment is not always required to initiate a car lease. In fact, when leasing a car you should make as small a down payment as necessary. Although this can result in higher monthly payments, it protects your money. As it is not possible to recoup a car lease down payment in the event your car or truck is totaled after leasing it. However, a car lease down payment may be mandatory if you are in a poor credit position, or if you want a low monthly payment like those advertised by dealerships. Some leases may also require certain upfront fees, like an acquisition fee, to be paid before taking possession of the vehicle.
