5 Reasons Leasing a Car Is a Bad Idea in 2022

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  • Leasing a vehicle is one way to keep monthly payments low.
  • Monthly payments lead to no equity when you lease.
  • Leasing also means living with dealer-set restrictions.

There are no one-size-fits-all rules in personal finance, including whether to lease a vehicle.

Rising interest rates make leasing a car a lot more tempting. After all, leasing keeps your monthly payments low, and you can afford a fancier ride. While leasing offers some advantages, particularly if you trade cars every couple of years, it's also rife with disadvantages. Here are five of them.

1. No equity

Leasing means never having equity in the vehicle. You can never sell it for cash, and any money you put into it benefits only the dealer. Financing a loan may not be fun, but if you're leasing only because you think it will be less expensive, you'll need to run the numbers to be sure.

Let's say you plan to lease a vehicle for three years. If you purchased the vehicle, payments would run $500 per month for 36 months, but since you're leasing, your payment is only $350 per month. You feel like you've scored a win.

However, when it's time to turn the vehicle back in, the car has a few scratches and you need to pay to have them repaired. You've also gone over the mileage limit, which will cost you more. Just as importantly, you have no equity. You truly only paid for the use of the car.

Now, what if you decided to buy the car instead, and in order to keep your monthly payment low, you stretch the loan term to 60 months instead of 36? Although you'll have a monthly payment for 24 months longer, you'll end up with a car you own free and clear. If you're ever in a financial bind, it's a car you can use as collateral or sell.

Better yet, if you maintain the vehicle well, you can drive for years without a car payment.

2. Mileage restrictions

Dealers typically restrict mileage on leased cars to 12,000 to 15,000 a year. This is for two reasons. Not only will they be able to resell a low-mileage car for more after you turn it back in, but your contract says you'll have to pay for any mileage driven over the limit.

That means fewer long road trips and the need to pay special attention to how many miles you've got on the odometer.

3. Restrictions

If you're set on leasing a vehicle, read the contract carefully. It's possible the dealer will include a clause saying you cannot move to another state or country with the leased vehicle. For some, that clause is limiting.

4. Tricky if your situation changes

Let's say you're sailing along, and life is going great. You're at the end of your lease, and it's time to turn it in and find another vehicle on the lot.

What happens if you become ill or lose your job? Will you have enough money in your emergency savings account to drive another car off the lot or will you be stuck without transportation?

5. Additional costs

Auto leases do not make for fun reading. If you read the contract close enough, you may notice an upfront fee and responsibility to pay for repairs (even though the car does not belong to you). There will also be a hefty termination fee if you decide to end the lease early.

Despite these drawbacks, leases are perfect for some. For example, if you have a high-profile job and want to convey an image of success when you drive, a leased vehicle may be the most cost-effective way to do that. 

No matter what your situation in life is, the smart move is always to read the fine print before making a final decision. 

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