Here’s Why Fewer Consumers Are Leasing Cars These Days (2024)

FAQs

Here’s Why Fewer Consumers Are Leasing Cars These Days? ›

Higher prices.

Instead of leasing, motorists are increasingly financing new-vehicle purchases for longer periods to help keep monthly payments low. Nearly one out of every five new-car shoppers now takes out a seven-year auto loan to finance the cost.

It surprises some drivers that you pay more interest on a lease than on a purchase loan. Because you have no collateral with a lease (you don't actually own the vehicle as an asset), lenders usually reduce their risk by increasing the interest rates. Interest accounts for a high proportion of a monthly lease payment.

Unless you habitually buy and sell cars every couple of years, taking out a loan is probably the more cost-effective approach. This is because even though you've paid less during those first few years, you have no equity in the car when the lease expires.

Leasing helps protect you against unanticipated depreciation. If the market value of your car unexpectedly drops, your decision to lease will prove to be a wise financial move. If the leased car holds its value well, you can typically buy it at a good price at the end of the lease and keep it or decide to resell it.

Additionally, leased vehicles don't typically retain equity when you lease, what you owe on the car only catches up to its value at the end of a lease. This could be viewed as a waste of money by some since you're not in an equity position at lease end.

“The annual car insurance cost for a leased car is usually higher than for a purchased car. Also, the driver of a leased car must pay personal property tax on the car.

Overall, only 8.5% of these high rollers paid cash. Around 31% leased and 60.4% took out a loan with an average payment of $2,201 and an average term of 56 months. For comparison, the general market in 2021 saw 9% of buyers paying cash, 20% leasing, and 70% taking out a loan.

Minimal financial loss – By leasing a car, you will always beat the depreciation because the depreciation is already set. If you had an accident on your leased car, the manufacturer won't charge you extra for having an accident history.

Will car leases go down in 2024? ›

In 2024, lease returns are expected to rise then fall. Experian predicts, “retail leasing returns will rise to 1.1 million in the second quarter of 2024, but then fall to only 640,000 by the end of that year.” So, if you're hoping to buy a pre-owned car in 2024, look around April to early summer for the best selection.

With a car lease, you are basically paying to drive the car for a short-term. What happens at the end of a car lease agreement? When the term or duration of the lease period ends, the vehicle must be returned to the leasing company or it may be purchased for its residual value.

Leases require little or no down payment, and there are no upfront sales tax charges. Additionally, monthly payments are usually lower, and you get the pleasure of owning a new car every few years. With a lease, you are essentially renting the car for a fixed amount of time (typically 36 to 48 months).

Strict rules: Because you don't own the vehicle, lease agreements typically have strict rules to prevent excessive mileage or wear and tear. You also can't make any modifications to the vehicle during your lease term. If you breach the contract, you could be on the hook for hefty fees.

Leases made up 31% of the auto market in January 2020, and just 17% last July, according to a new auto study from consumer credit reporting agency TransUnion. Of 3.8 million consumers who ended a vehicle lease between July 2021 and June 2022, only 25% of consumers chose to lease again, according to TransUnion.

Why are car leases so expensive now? The cost of cars has significantly increased, as has the cost of leases. Plus, many current lease contracts aren't as favorable toward drivers as they once were – a result of increased demand for new cars.

Over one-fifth of new vehicles in the United States were leased in 2023, with the rest being sold outright. The percentage found in the third quarter of 2021 was even higher, with 26 percent of new vehicles in the U.S being leased that year.

In 2024, leasing is once again growing in popularity as drivers look to avoid the high interest rates that come with buying. There are also reasons why the dealers and car manufacturers themselves are fans of leasing. Leasing keeps customers coming back to the dealership, more so than selling does.

You don't get to keep the vehicle: The main disadvantage of leasing a vehicle is that you are paying for a car you don't get to keep. If you prefer to invest in a vehicle you can own for years, then buying may be the right option for you.