We constantly have listeners call the CarPro Show who are skittish about leasing, especially if they have never done it before. Here are some things to think about when considering whether to buy or lease your next vehicle.
1. Consider How Much You Drive
When I get the question of lease versus buy, my first question back is always how many miles per year do you drive? Some people, especially-third party leasing companies, will disagree with me on this; however, I maintain that if you drive more than 17,500 miles per year, you have no business leasing. There are some true advantages to leasing, but this is only a benefit to you if you are not a high-mileage driver.
2. Understand Leasing Advantages
The reason for leasing in my view is that if you stay within the allotted mileage, you cannot owe more on your car than its value at the end of the lease. The advantage here is that you can simply walk away and not owe any more. If you have equity, you get to keep that for your next lease or purchase.
The reason for this is that you are highly unlikely to need to buy tires and you won't be out a ton of money on maintenance costs like timing belts, and other mechanical issues that occur further down the road as the car ages. Additionally, you will always have the latest technology options and safety features on your car. Some automakers, like Toyota, provide free maintenance for the first two years, others cover maintenance for the full term of the lease.
3. Understand the Leasing Mindset
If you are going to get on a cycle of back-to-back leases, it is critically important that you have the mindset that you will never own a car outright. When you are leasing, until recently, you are paying a lower than usual monthly payment, and often this lower payment allows you to lease a higher-end model. These are all issues to consider when pondering whether to lease or buy.
If you are a person who likes to be without a car payment and drive a car until the wheels fall off, then, bottom line leasing is not for you. I would never go into a lease planning to buy the car at the end of the lease. This defeats the attributes of leasing in the first place and often results in a total of 8 or 9 years of payments. It has worked out well for people lately, but these are unusual times.
4. What to Know about Third-Party Lease Companies
Third-party lease companies purchase from local dealerships, mark them up, and then generally stretch a lease out to four, five, or six years. That is just too long to lease in the majority of cases. Why would you add that extra profit margin to pay a third-party lease company when it is not necessary? Third-party lease companies cannot buy directly from an automaker, with the exception of Tesla, and are just middlemen who can easily be eliminated.
5. Why Leasing From The Manufacturer Means Lower Monthly Payments
It is also important to understand that there are often low lease interest factors offered by the factory to help keep your payments low, although that is a rarity right now. This is very prevalent with the imports and luxury brands, especially in December. A third-party lease company does not have access to those rates, therefore, making the case again that it is better to lease directly from the dealership.
I hear from consumers on a regular basis who have been burned by leasing many years ago. Today, the reason manufacturers love leasing is because it puts you back into the market sooner. This should result in the manufacturer selling more cars. For this reason, some manufacturers make leasing such an attractive proposition that it is hard to resist, except recently.
Our dealers will give you the same Show price whether you buy or lease, you can always compare the two ways side by side.
The Current Environment
Many people are shocked coming out of a 3-year lease right now, having no idea they have so much equity in their leased car. They are also shocked at the lease payments on a similar car to what they are driving. For this reason, I recommend a lot of people buy their current lease out.
To lay it on the line, there are no lease deals right now, but they are coming back since inventory levels are up. Lease incentives are expensive for the automakers, but an oversupply of vehicles will change that as time goes on.
Right now, a 60-month finance contract at a good interest rate is about the same payment monthly as a 3-year lease, so it is hard to make the case for leasing unless there are specific tax implications for you.
Leasing will get back to normal, hopefully soon. In the meantime, look at both options and make a good decision. If the payments are close and you drive average miles, I would strongly consider a lease.
Remember: I have an extensive leasing section on my FAQ page.
