- There's no one-size-fits-all answer to whether you should lease a car.
- In some situations, a lease is the best option, like when you only need a car for a short amount of time.
Your circumstances alone determine whether a lease is the best option.
Some people believe it never makes sense to lease a vehicle because you can't build equity by leasing. Others say they'll only lease because leasing allows them to drive a car they may not otherwise be able to afford.
What matters is whether leasing makes sense in your situation. Here, we'll cover when leasing is the best financial option for you, and some things to consider if you decide to lease a car.
How does a lease work?
Most people buy cars because they hope to own them outright one day. When a vehicle is leased, it's more like a long-term rental. The lease period can run anywhere from one to five years, depending on where the driver wants their monthly payment to land and how often they like to switch cars.
Typically, the allowable mileage on a leased vehicle is between 10,000 to 15,000 per year. Beyond that, the driver may end up paying excess mileage fees of as much as $0.25 per mile. A driver may also be charged for any excess wear and tear on the vehicle. And, depending on how the lease is written, a driver who wants to get out of a lease early could be liable for all remaining payments.
While a lease definitely has its disadvantages, there are times when leasing is the right choice.
When does a lease make sense?
Because nothing in the world of finances is black or white, there are situations when leasing is the way to go. Here are some of them.
When you like trading out vehicles
If you're someone who does not tend to keep a car for more than two or three years, leasing is one way to trade up when it's time for something new. As long as you don't put more than 10,000 to 15,000 miles on the vehicle per year, you won't be hit with excess mileage fees and may leave money in the bank.
When you need a prestige car
If you're a real estate agent or someone who routinely drives clients around in your car, you may feel the need for a prestige vehicle. Because a lease only charges you for the use of a car, it's likely you'll be able to snag a lower monthly payment for a "status" car.
When you need a vehicle for a short time
Whether you plan to move to a large city where you'll be taking public transportation, moving out of the country for a few years, or inheriting a vehicle from your grandfather, you may not need a car for long. If that's the case, it could make more sense to lease a car for a year than to purchase a vehicle that loses more than 10% of its value the moment it leaves the dealership lot.
When lower monthly payments are vital
Let's say you're in graduate school and need dependable transportation, but your monthly budget can't handle an expensive car payment. When the two most important qualities of the vehicle you drive are dependability and a low monthly payment, a lease tends to offer both.
One thing that gives a lease a bad name is how expensive it can be to turn it back into the dealership. Before deciding to lease a car, make sure you read the fine print of the contract and ask yourself the following questions:
- Can I keep my mileage below the allowable maximum? If not, make sure you put enough money away to pay excess mileage fees.
- How long will I need this car? Never take out a lease for longer than you believe you'll need the vehicle. And if you're worried that circumstances may change and you'll need to return the lease early, find out exactly how much it will cost you to do so.
- Who else is likely to drive this car? Let's say your partner occasionally drives your vehicle and they are famous for "bump parking" and generally disregarding upkeep. Remember that you'll be charged for excess wear and tear on the car and plan accordingly.
Although it makes for good print to declare that no one should ever lease a vehicle, it's simply not the case. In some situations, leasing represents the best financial decision.
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