It seems mind-boggling that the car and truck leasing industry is booming. Why is it that people are choosing to lease vehicles when they can buy them new or second-hand? The downside to leasing is that after paying months or years on a vehicle, you have nothing to show for it at the end. However, the more economically-minded are discovering that their sum value per dollar spent is actually far better when they lease rather than when they buy.
Starting With The Math
Let’s say that you want to buy a Nissan, and it costs you around $21,595. A deal for leasing for three years would come to around $9,071.16, which includes taxes, the initial amount, and so forth.
A generous depreciation rate would be 46%, though, in reality, it is often higher. Meaning that the resale value of the car by the end of that three years is $11,661.30, meaning that the car lost $9,933.70 from its original value.
Buying, and assuming you sell the car after three years, you spend $10,308.70. But, leasing for three years only costs $9,071.16. The question then comes down to simple math. Would you like a car for three years to cost you 9K or 10K?
Some may say that somebody could keep a car in good condition for ten years and get the best possible value, but they would be wrong. The only way to get better value for your money is if you buy a used car or second-hand car with around 20 thousand miles on the clock, and then keep that car for ten years. Only under those circumstances do you come out noticeably ahead in terms of value for money.
Lease Obligations Do Not Show as Debt
This is a massive feature for some people when it comes to getting a new car. Most people are in massive amounts of debt. It is the nature of the game. Over the last 20 years, it has become easier and easier to get credit for everything from a car loan to a new holiday, and people have been taking them. Promises of low monthly payments and no down payment have lulled people into debt. They don't want anything else on their credit report, so when they see that a lease term doesn't count as debt on their credit report, they choose a car lease rather than an auto loan.
Lease Payments Can Be Considered Business Expenses
This is a massive benefit for some people, especially since many people are self-employed and/or working from home. People are able the get a new vehicle with all of its warranty promises for fairly low lease payments, and then pass them off as business expenses.
Even if they do not get lower monthly payments for their leased car, it is easier to pass off a lease deal as a business expense than it is when they buy a new vehicle from a dealership. In most cases, people who buy a car have to split their usage amount 60/40 for home and business. Whereas auditors will more easily accept that your monthly lease payments are at least 90% business use cases. This is one of the biggest benefits of leasing for small business owners, freelancers, and self-employed people.
Are There Any Downsides or Cons of Leasing?
As for the cons of leasing, they are surprisingly similar to the downsides of buying. For example, wear and tear may be a problem, but it is just as much of a problem when you buy the car and want to sell it after a few years.
At the end of the lease, you may have nothing to show for your money, but if you sold your car right there, you would still have nothing to show because you are just recouping the massive amount you spent in the first place. The residual value of the vehicle goes down very quickly.
One could complain about the payments and interest rate issues that come with leasing, but the same is true if you struggle with your loan payments to pay for your car. The lease contract says that the lessee has a mileage limit, but you can set your mileage limit before you lease the vehicle. Plus, even if you had a new car, if you are doing a lot of miles, then that too is reflected in its resale value, so the numbers balance up in the end.
Some complain that they do not have the credit score for a leased vehicle, but the leasing companies are no more vindictive than a lender and loan term setter when you buy a car. In fact, financing options are often worse than car loan and car lease plans.
Buying the Leased Car At the End of the Term
Some people have a hard time saying goodbye. There is no real benefit to buying the car from the leasing company at the lease end, but it may save you the hassle of buying your next car or next vehicle. Though that is not the real reason why people buy their leased cars. In most cases, people who buy their leased cars are ones who have made memories in the car, who have come to rely on the car, and who do not want to give it up. In reality, being able to buy the leased car at the end of the term, for the Blue Book value of the vehicle, is a pretty good benefit. It may not offer fantastic value for money, but it is a handy perk nonetheless.
Some say that a leased car is not worth the purchase price because of the excess mileage and excessive wear that comes with leased cars, but that is not the case. They are mistaking the way people treat hired cars with the ways they treat leased cars. Car buyers are not doing donuts in the Walmart parking lot with their leased car. They may be doing such things with their hire car, especially if they paid for the damage insurance upfront. But, in most cases, car buying and car leasing people take care of their leased car, they stick to the number of miles they signed up for, and they take good care of their vehicles.
The Lesser-Known Benefits of Leasing
You can often pick your own down payment to make before you lease your vehicle. Similar to when you get a car loan, you can sometimes make part of the payment beforehand and then make lower monthly payments as time goes on. The only downside is that you cannot trade in your car for its trade-in value and use that as your down payment.
When you lease a car, you get all the accessibility features, you can pick your number of yearly miles, and you get all the modern safety features. One of the best reasons to either buy or lease new cars every four years is because of new safety features, and because car payment companies and car insurance companies will go a little easier on you. That is unless you are leasing luxury cars, in which case your car insurance will be pretty high.
When you lease and car, you don't have to worry about gap insurance, the purchase price, or even the monthly costs beyond the lease period payment agreement. There is often some pretty tasty lease offers on the table, and some manufacturers offer incentives for people to lease their cars rather than buy them.
Are Lease Payments Less Than Traditional Car Loan Payments?
In some cases, if you have a good credit rating, you can get a car loan or a regular loan for less than what it costs for a car lease. However, this does not change the value of money you are getting for your car. When you buy a car, you are losing out due to depreciation, and nothing changes in that regards even if you get a good loan deal.
If you have a bad credit rating or you are looking for a car financing deal, then the monthly payments and your overall payments are going to be far higher than your monthly lease payments. In fact, perhaps one of the underlying reasons why car leasing companies are doing so well is because of the massive monthly and huge interest costs that come with car financing terms. Under most circumstances, the cost of leasing is better than buying. Plus, in terms of value for money, you are often getting a better deal if you lease a vehicle rather than buy it.
If you are in the market for a new car, it is probably time to sell your old one. Whether you are looking to lease or buy a new car, selling your old car can help you finance the new one. At IMX Auto, we can give you a quote for your vehicle in 2 minutes or less, and help take away the burden of getting your old car off your hands. Visit our website to get a quote online or visit us in-store to get started!
Sunday: By Appointment Only
Address: 811 N Victory Blvd, Burbank, CA 91502