Many people rely on having a vehicle to get to work, run errands, and generally function. So if you need to replace your current vehicle, you may be torn between a car purchase and a lease.
Leasing a car could work to your benefit. But it could also backfire on you. Here are some pros and cons to consider before making your choice.
Pro No.1: You may get to put less money down
You'll commonly have to make less of a down payment on a lease versus a car purchase. If money is tight, and you don't want to raid your savings account, this option may be more appealing.
Pro No.2: You're protected from major repairs
Most new cars come with a three-year or 36,000-mile warranty. Beyond that, if your engine stops running or your transmission blows, it's on you to cover the cost of a repair. With a lease, you generally don't run the risk of having to make major repairs, because your vehicle is effectively under warranty.
Pro No.3: You don't have to worry about a depreciating asset
Cars lose value the instant you drive them off the lot. In fact, Dave Ramsey says that the typical new car loses between 9% and 11% of its value within the first minute you drive it. So if you're buying a $40,000 car, that means that about a minute after you drive it away, it's only worth around $36,000. Ouch. With a lease, you don't have to worry about the value of your car depreciating because your intent isn't to own it in the first place. That takes a lot of the pressure off.
Pro No.4: You won't get stuck with a car you don't like for the long haul
You never know how well a given car is going to serve your needs until you actually start driving it around. If you lease a car and don't end up loving it, you're only locked into that lease for a few years. On the other hand, if you buy a new car and end up wanting to replace it, you might lose out financially due to the fact that its value has depreciated substantially.
Con No.1: You'll have limited mileage
When you own a car, you can drive as many miles per year as you want. When you lease a vehicle, you're generally limited to a certain number of miles -- often, 10,000 or 12,000, though terms can vary. That may end up limiting you in one way or another. And it's a detail you might end up stressing over.
Con No.2: You might pay for every little scratch
Lease contracts are notoriously strict when it comes to damage. If your car gets dinged beyond what's considered normal wear and tear, you'll usually be charged to fix it.
Con No.3: You might face a host of fees to put your lease in place
The fees you'll be charged to put a lease in place will depend on the dealership you work with. But don't be surprised to see hidden costs arise, like administrative fees. And your dealership may even require an extra (potentially refundable) deposit to cover wear and tear.
Con No.4: You won't actually own anything
People who make auto loan payments for years at least get to walk away owning their vehicles outright once the loan is paid in full. With a lease, you don't own anything once your lease comes to an end. Granted, you could potentially buy out your lease, but that may prove complicated.
All told, a lease has the potential to work out well for you, but that's not guaranteed. It's important to understand the benefits and drawbacks of leasing a car so you're equipped to make a sound decision.
