Whether or not leasing is a waste of money depends on what you prefer when it comes to auto financing. If you’re considering leasing instead of buying, let us give you some food for thought.
Is Leasing a Waste of Money for You?
When it comes to the decision to lease or buy a car, there are things to consider, including your future wants and needs, and what you value in a vehicle.
Do you value driving the latest and greatest cars? Typically, people who lease are looking for a smaller monthly payment and the ability to drive a new vehicle every few years. When you lease a new car, the monthly payment is usually cheaper than it is with a loan. This is very appealing to borrowers who want to drive a new vehicle without a big payment.
To help you decide if leasing is for you, ask yourself these questions:
- Do you always want a car payment? If you’re OK with always having an auto loan payment, leasing could be for you. With leasing, you’re not paying the car off, you’re just paying to drive it.
- Do you like customizing your vehicle? Do you like adding decals, customizing the wheels, lifting, etc.? Then leasing may not be for you. If you lease, you must return the car to the leasing company with the same equipment that it had, within normal wear and tear.
- How much do you drive? If you drive a lot, you usually pay extra when it comes to a lease. Leasing has mileage limits that vary, usually around 10,000 to 12,000 miles a year, and if you go over mileage, you’re going to pay extra per mile.
- How rough are you on vehicles? If you’re a careful driver, maintain a clean car, and have enough income to pay for maintenance, leasing may be for you. If you return a leased vehicle that has an issue – say a cracked windshield you didn’t get repaired – the leasing company will charge you, and you’re going to end up paying for that cracked window anyway.
- How’s your credit score? If your credit score isn’t the best, you may not qualify for a lease, since the vast majority of leases are for good credit borrowers. If you qualify with a lower score, you’re likely to have a higher money factor (leasing interest rate), which increases the cost of the lease.
Your answers to these questions can help you determine if leasing is a waste of money. Everyone’s preferences differ when it comes to what they want out of a car, so whether or not it's a waste of money for you depends, because, for some borrowers, leasing is a great deal.
Benefits of Buying a Car Instead
When you finance a vehicle with an auto loan, you can strive to keep your vehicle's equity. Equity is the difference between what you owe and what the car is worth. Equity is useful when you trade in a vehicle since you can apply it toward a down payment on your next car. It’s extremely common for borrowers to trade in a vehicle, and it's one of the biggest pluses to buying over leasing.
With leasing, you don’t have any ownership rights to the car. The vehicle is the leasing company’s property unless you decide to buy it at the end of the lease. 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.
Like buying a vehicle, you’re required to maintain full coverage auto insurance while you lease. The cost of your insurance is largely dependent on the make and model of your car. Since leases are almost exclusively for new vehicles, your car insurance for a leased vehicle is likely to be more expensive compared to a used car loan. When you lease, since leasing companies generally require higher coverages, you’re likely to pay a higher premium each month.
What Do You Value in a Car?
Borrowers who lease are usually looking for a smaller monthly payment, and the ability to drive a new vehicle every few years. Leases don’t typically last longer than two to three years, and once the lease is over, the car is returned to the dealership or leasing company. The lessee is free to lease another vehicle, purchase the car for a predetermined amount, or just walk away. There can be more fees with leasing, such as a termination fee, or a wear-and-tear fee at the end of the lease.
Depending on what you want from your vehicle, leasing could be for you. However, if you like to customize your cars, don’t want to worry about how many miles you drive, and you want to take advantage of the vehicle’s equity for a down payment on another car, a loan may be more in your wheelhouse. Additionally, if your credit score isn’t the best, you may have a better chance of getting approved for an auto loan than a lease.
If you’re looking for your next vehicle, you can start with us at CarsDirect. On our site, you can compare new and used car prices, and we also connect bad credit borrowers to dealers with bad credit lending options. To get matched to a dealership in your area, simply fill out our free auto loan request form.
Bethany Hickey Senior Auto Financing Editor
Beth is a content manager and writer for Auto Credit Express, CarsDirect, and other automotive blogs emphasizing financing and car loans for consumers with subprime credit. She is a graduate of the University of Michigan in Flint, with a bachelor’s degree in English writing.
