I have been told since I was a child that I should never lease a car. I never questioned it and have yet to lease a car to this day. However, I have quite a few friends who have been burned by this and I know it’s not something many people talk about. But…if you really want to make sure you are doing the best with your money, you should buy the car and avoid leasing at all costs!
One of my good friends recently approached me to ask how she could cancel her car lease without getting into financial trouble. Unfortunately, this is not an uncommon question. In fact, I have been asked this question at least 2 other times in the last month.
Even though both my mother and uncle told me countless times to never lease a car, I know that many people did not have such brilliant minds guiding them to financial success. (A salute to the best mom and the best uncle ever!!!!).
Because I have recently been asked this question, I wanted to share some tips to help you on your path to financial freedom.
First, I know that leases sound tempting at first. And while it may seem like a good deal, the problem comes later – don’t give in to the temptation to lease a car without thinking it all through! Sure, a lower payment sounds great, which is great for anyone on a budget. I won’t deny that lower payments are awesome, but the real, actual cost of leasing a car is much higher! Let’s take a look at that in more detail:
You never own it when you lease a car
Sure, you can drive a new car that you like, but at the end of the day, do you ever own it? The answer is an absolute no. You’re actually renting it, really. Just like when you rent a house or apartment instead of buying a house, you don’t own it. you’re just paying for the privilege of using it.
When you lease, you will have a car payment.
There’s nothing I love more about owning a car than not having to make a monthly payment. That’s right: I own my car outright. I don’t make any payments on my car because it’s completely mine. While I didn’t pay for my car in cash, which I would like to do for every other car purchase I make, by the way, I don’t have to pay a dime to use it now. Have you ever thought about how you would feel without a car payment? Let me tell you, it was a dream of mine that I thought would never come true.
However, I worked hard, made all the payments on time and made a larger payment at the end just to get it out of the way. More awesome advice from my mom and uncle: make extra payments whenever possible, even if it only rounds up to the nearest dollar increment, $5 or $10. This helped me exponentially. By taking action and working hard every month, I paid it off a month early in December 2016. I haven’t had a car payment in almost 1.5 years. I remember when I paid it off. I made the payment and then ran to show my mom the payment screen. I was so excited and proud of myself and when I tell you I took a load off…I mean I could really feel it!
The feeling was indescribable and it is something you will never experience if you are renting a car. You can even get in the habit of those low payments and have a car payment. That means you are getting used to paying for something you will never have. I don’t want that for you and if you think about it, you don’t want that for yourself either!
You have a limit of mileage and time
I hope you read your lease carefully. You actually have a limit on the amount of miles you can drive the car and you usually have a time limit as well. That means you can’t just take weekend trips up and down the coast every weekend regardless of the mileage you’ve already put on the car. So what happens if you exceed the set number of miles – you have to pay for those extra miles! Exactly how much depends on your agreement, but I’ve seen them usually cost around $.20-.25 per mile. Honestly, that can add up fast. And you don’t get a ton of miles to begin with. I’ve seen it’s usually 10,000 to 15,000 miles per year.
If it gets repossessed and sold for less, you owe the difference.
You know it’s true: the car company is going to get what it’s owed. Let’s say, for some reason, you can’t afford to make the payments and the car is repossessed. That alone is horrible to me, but that won’t be the end of it. The company you bought it from will sell the vehicle once they get it back. They don’t care how much they sell it for or even when they sell it. If they sell it for less than what you owe for the remainder of your lease, you will have to pay the difference. Yes, that means that even if you can’t afford to make the payments, you’ll still have to pay them. See how this is a terrible deal?
It’s so expensive when you add it up.
Let’s take a look at the math for a second (yes, even if you hate math!). When you lease a car, you have to make the monthly payment. That’s a given, and usually the only thing you’re told when you lease it. But you’ll also have to pay for any additional wear and tear at the time you turn it in – don’t forget any extra mileage! So, let’s say your lease payment is $400 per month and you sign a 60-month (or 5-year) lease. That means you will have paid $24,000 over the course of the lease at the time it’s done. And that’s just for the principal payment! With that, you could have bought the car. But if you want to buy it after your lease ends, you’ll have to pay for what it was worth at the beginning of your lease. Even though you paid $24,000 to drive it, don’t forget that it wasn’t yours. If you want it to be, you have to start over!
Do you really want that? Sounds like a terrible deal to me. Leasing is not a good deal for anyone unless you simply have a lot of cash waiting to be spent. Instead of opting to lease a car, you’re much better off buying a car. I mean, take a look at me! I bought a car and paid for it in full. No one limits my mileage. I don’t make any payments. The wear and tear is not extra. it’s all mine No one can take it away from me for non-payment. And I will sink that thing into the ground to get all the value I can out of it.
Have you ever leased a car, would you do it again, why or why not, share your experiences with me below!
Frequently Asked Questions
What is leasing car?
Leasing an automobile is a viable alternative to purchasing one. Essentially, you are renting a vehicle for a certain length of time rather than purchasing it entirely. The car must be returned to the owner at the end of the lease term. When you purchase an automobile, you become the owner. If you finance the vehicle, you will own it after you have paid off the auto loan in full. If you pay cash, you will have complete ownership of the car at the moment of purchase.
Leasing a car is not the same. Instead of purchasing the car, you pay a dealer for the right to use it for a fixed length of time, generally three to four years. If you believe that purchasing a new automobile is too costly, try leasing one for a certain length of time. You just pay for the time you use the car, which reduces the effect of maintenance and depreciation expenditures.
Leases sometimes offer cheaper monthly payments than vehicle loans, but those reduced payments come with a catch. Instead of accumulating equity in the vehicle, you are merely paying for the right of driving it for a certain number of hours and miles.
While you may often apply for vehicle loan financing via a bank or other third-party lender in addition to a car dealership, arranging a car lease through a bank is unusual. Instead, you will most likely engage directly with a dealership or a car finance firm.
What Happens When My Car Lease is Over?
When your lease expires, you have three options: trade it in for another lease, return it and walk away, or purchase the automobile you’ve been leasing. However, if you decide to purchase, you may wind up spending more than the automobile is truly worth, so proceed with caution.
Car leases contain additional conditions in the contract that might make trading in or selling your lease to another dealer considerably more complicated. Because of the present dearth of new vehicle supply, used automobiles, particularly off-lease cars less than three years old, which are the most sought after, have become a roaring profit grab for car dealers who can’t order enough new inventory.
I think that 70% to 80% of new cars are bought or leased. The potential incentives that the manufacturer will provide the lessee are often quite appealing, making it impossible for them not to purchase another car. If the car has considerable wear and tear or has exceeded its mileage limit, you may be forced to purchase it or suffer severe fines.
Few individuals will turn in their lease and walk away since virtually all leasing firms include a price in the contract called a disposition fee that ranges between $395 and $995 extra for higher end automobiles. They will charge you if you do not get another car. This is something that all lenders do, not just a few.
Most leasing businesses will contact you prior to the due date to arrange for collection. But don’t expect yours to. If the deadline approaches and they haven’t contacted you, contact the firm yourself; some companies expect you to.
Can you lease a car for only one month?
No, generally you cannot lease a car for one month. The majority of leasing firms will not provide you with a new car for a single month’s lease. However, depending on who you choose, you may be able to lease a car for a short length of time. In contrast, a rental firm may rent you one for a month. The majority of the cars you want are obtainable for short-term rental.
What credit score do I need to lease a car?
When leasing a car, your credit score influences the sort of vehicle you may receive and the amount you’ll pay. You must have a credit score of at least 700 in order to be eligible for preferential lease terms. Depending on the cost of the car, the down payment, and other credit or contract restrictions, some firms may be prepared to lease to you with a lower credit score.
Lower score levels make leasing a bit more difficult. The worse your credit score, the more probable it is that you will have to pay more at signing, as well as more each month. According to Hall, you will not be charged extra for the automobile itself. However, you may have to pay more in interest or put more money down to maintain your monthly payments where you want them.
Reducing your credit card bills is one of the quickest strategies to improve your credit score. Pay off as much of your credit card debt as you can. A big credit card debt might harm your credit score. A debt of less than 30% of your credit limit might assist you in reaching a more appealing amount.