Six Reasons to Lease a New Car

So most of us have probably considered leasing a new car or shopped for a new vehicle at one time or another and have come away with a less than good feeling about the whole process.  If it is your first time looking to buy or lease a vehicle, I am sure that you have heard plenty of opinions from your friends and family.

Everyone has an opinion on how to buy a car and what to do when you go to the dealership.  Among all that sound advice surely you have heard this one, “Don’t Lease a Car.”  Some of the reasons they might give you are:

• You are restricted on how many miles you can drive.
• You never actually own the car when you are leasing.
  
• You will be stuck in that lease until the end
  

In response to the negative responses, here are six reasons that it is a good idea to lease a new car.

1. Leasing a New Vehicle Can Save You Money Every Month

Lease payments can be much lower than those required for a traditional auto loan. Many times the difference in monthly lease payments can be close to half of what they would be with a traditional loan. In addition, the upfront costs associated with leasing can be much lower than a loan. 

2. Leasing a Car Saves you on Tax

When you purchase a vehicle you are paying tax on the entire price of the vehicle not to mention the interest you will be paying on that tax as well.  Think about that, paying tax and then paying interest on it.  I don’t like the sound of that but unfortunately it is exactly what you do when you are taking out a loan for a vehicle.  Plus we all know no matter what the manufacturer or make of a vehicle, its overall value is going to do one thing and that is depreciate in value.  This isn’t a house that should appreciate in value over time and give you a positive return on your investment. Why would you want to pay tax on the interest for something that is guaranteed to lose value?  When you leasing a new car, you only pay tax on the total amount of your payments over the course of the lease rather than the purchase price of the entire vehicle. 

3. You Pay Very Little Interest on a Lease

When sign up for a traditional automobile loan it will have a set APR or annual percentage rate.  This calculates how much additional interest you will be paying over the course of your loan.  Unless you are finding a special reduced interest rate or 0.0%  offer from the manufacturer you can expect interest rates on these loans to range on average anywhere from 4% – 24%, depending on the term of your loan.  In a lease, the small amount of interest you are paying is based on what is called the money factor. In a good lease this money factor calculates out to nearly nothing. As with the tax situation above, this figure is only calculated based on the portion of the vehicle you are using during the terms of your lease.  In order to figure the interest rate of a lease you are considering simply multiply the money by 2,400. 

4. Less Worry About Repair Costs With a Lease

For the most part new car warranties typically last three years or 36 months and this is the length of most leases.  Since that is the case you really do not have much to worry about with a lease because your repairs will be covered by the factory warranty.  In addition, Gap insurance is included with new leases in most states. Gap insurance will cover you for any difference in your vehicle’s value and the amount owed in the event of a total loss.  When you take a out a loan for a vehicle, Gap insurance will cost you extra on top of the vehicle purchase price.

5. You Won’t Have Negative Equity

You may have been told that it is not a good idea to lease because you don’t own the vehicle.  When it really comes down to it, you don’t technically own the car when you have a loan either.  Until you have made all those payments the bank, you don’t technically “own” that vehicle.  The only difference is that due to the inevitable depreciation in the value of your vehicle, you will without question be upside down on your car loan within a few years.  There is no way in getting around this unless you put down a sizable amount of money towards the loan when purchased the vehicle.  But where did that get you? You will still be out that money either way.

Now when you get to that same exact point in the timeline on your lease you will have a blank slate instead up negative equity.  That means you will have options you would not have had if you had chosen to take out a loan on a vehicle. At this point you will have fulfilled your contract much more quickly and spent a considerably less amount of money at the same time. You can now either look into leasing another vehicle with no worries of carrying over part of your previous loan, walk away and look at another something else, or you can choose to purchase the vehicle you have become well acquainted with over the past few years.  This purchase price is a predetermined amount based on the residual value of your vehicle and will be noted in your lease contract.

6. Leasing is Flexible

Someone had once told you that it wasn’t a good idea to lease because you will be be restricted on how many miles you can drive.  It is true that most standard leases are for 12,000 miles per year however you can always work in the appropriate miles up front at a much lower cost than you would pay if you happened to go over.

Things To Consider

According to KelleyBlueBook.com the average transaction price of a new vehicle is approaching $34,000.  It is no surprise that more and more new car shoppers are looking for a way to save, but still be driving that new vehicle. Leasing a vehicle gives them that option.

As reported by Experian Automotive, in June of 2014 new car loan terms were continuing to lengthen, with the average automotive loan term reaching 66 months.”  Experian also reported that new car loans extending out 73-84 months made up 24.9% of all new vehicle loans”

Consumers are obviously looking to keep their payments at a manageable level due to the ever increasing costs of day to day life.  In order to do that with a traditional automotive loan the only way is to extend the term or put more cash down. I don’t know about you but if I can lease the same car and save thousands it doesn’t seem to make sense to take out a traditional loan for six years or more on a vehicle that is guaranteed to lose value.  Plus on top of that you will be responsible for anything that breaks down?  No thanks.  I much rather would have a new vehicle every few years; one that is covered under warranty and costs half as much because I am only paying for the miles that I am using.

Have you leased before?  Tell us about your experiences and what you think in the comments below.

Tags: Leasing
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