Why Does Leasing a Car Get a Bad Reputation?
Carlease Staff - November 27, 2018
Car leasing may get a bad reputation, but like any modernized option, it's here because it makes absolute sense for millions of Americans. One in three cars on the road today are leases. But, for the sake of this article, the experts at Carlease.com unpack this misconception and take a closer look at car leasing and its many benefits.
First, let’s start with the most prominent issue causing leasing to get a bad reputation: finances. Here's an example: let’s start with a 2018 Volvo S60. They are extraordinarily safe, getting top honors from Kelly Blue Book for sedans, and where this example is going, we’re going to be happy and safe. The Volvo S60 has a starting MSRP of $34,000.
Let’s say you lease the Volvo. It holds its value well and will be worth around $26,000 after a 2-year lease (the normal amount of time for a car lease). With a reasonable down payment of $1,000 and a good, low-interest rate of 2.5%, the payments will be around $350/mo before sales tax. TOTAL AFTER 2 YEARS: $9,400.
Now, let’s say you finance (make payments on a loan for) the same vehicle. Normally, consumers pay around 20% of the car’s value as a down payment which would be an immediate expense of $6,800. Additionally, assuming the same interest rate of 2.5%, payments will be around $480/mo before sales tax. TOTAL AFTER 2 YEARS: $18,320.
Clearly, for the duration of the 2-year lease, leasing is far better on your wallet. In fact, leasing is almost $9,000 less. True, when you finance a vehicle you can sell it at the end. However, if you plan to trade-in your vehicle every 2 to 3 years, leasing is a much more financially sound investment. Additionally, the $9,000 can be used in other investments or pressing needs, which is an ideal situation for many students or new families.
So Why the Reputation?
One reason leasing is believed to be the less prudent option is because people directly compare it to purchasing a vehicle for long-term ownership. In the long-term (at least 6-8 years), purchasing/financing a new vehicle is financially sound. Unfortunately, owning a vehicle for that long will undoubtedly include maintenance costs that would otherwise be covered under warranty in a lease.
Plus, the majority of people will upgrade their vehicles well before the years where purchasing a vehicle starts to make financial sense. And tying up tens of thousands of dollars in a vehicle for that many years presents an enormous cost of capital dilemma any good financial adviser would caution against.
A second reason (and less logical one) is the stigma of driving a vehicle you do not own. This is a mindset many pre-baby-boomers do not share, but it is still causing some groups to purchase - whether they plan to keep the car long or not.
So, as noted above, there are specific situations in which leasing is a smarter financial decision. Just think about why you need a car and if you want to have money tied up in a vehicle for long-term or have more money to use elsewhere in the short term. However, if you are like us and your vehicle needs will be evolving with your tastes, lifestyle, location, family... leasing is a fantastic alternative to financing.
Leasing is like demoing a car - give it a try. If you don't like it, send it back. If you love it, buy this one or the newer model later...
Let our leasing experts to show you how fun and easy leasing can be, email us today: firstname.lastname@example.org
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