10 Reasons Not to Lease a Car

Car leasing has become popular among drivers seeking to avoid the hassle of buying outright. It is presented as a seemingly attractive option for driving new cars without being committed to ownership. The thing is, leasing is not as straightforward as it appears. Beneath the ease lies the hidden drawbacks that can change an appealing deal into a financial burden. Before signing a lease, it is important to consider any possible downsides and if leasing truly fits your needs.

1. High Long-Term Costs

Leasing may be a somewhat inexpensive alternative up front; however, over time, the numbers present a totally different picture. Although the lease payments are lower on a month-to-month basis than with car loans in buying the car, this does not add any equity with the financier. At the end of the lease agreement, those payments are gone forever. Taken over several years, leasing several cars can get quite pricey, especially since depreciation and resale value are usually taken into account.

2. Limited Mileage Allowance

Most of the leasing agreements have some pretty severe mileage limits that typically stand somewhere between 10,000 and 15,000 miles annually. The excessive mileage attracts huge fees per mile, which can grow real quick in case one is experiencing extended commuting and frequent long-distance driving; leasing might turn out to be impracticable.

3. Lack of Ownership

You essentially rent the car when leasing a vehicle. It remains the property of the lessor, so you never have any equity in it. Unlike buying-when a fully paid-off vehicle is usually considered a long-term asset-leasing provides no return after the contract has ended. A no-ownership deal limits one’s possibility to decide on the car’s usage, improvements, or sale.

4. Lease-End Fees and Charges

Returning a leased car often comes with some hidden fees. Wear-and-tear fees may be assessed if the car is deemed to have more than normal usage. A few minor dings, some scratches, or minor damage to the interior can result in some pretty hefty charges. Moreover, lease contracts may include the requirement to pay a disposition fee when returning the car, increasing the overall cost of leasing.

5. Customization Restrictions

Most leased cars have strict rules which enormously reduce one’s flexibility in causing modifications or personalizing the vehicle. Most of the agreements look down on customization processes such as installing aftermarket parts or adding accessories. Even at times, minor changes may also attract some penalties while returning the car, such as custom paint or upgraded sound system. The companies that lease out cars usually require the car to be returned in the same state, with normal wear and tear as an exception. Leasing seems very restrictive to drivers who want to make a car truly their own.

6. Early Termination Penalties

It should also be noted that breaking early usually comes with very exorbitant costs. In objectiveness, a lease aims to tie a consumer into a fixed time, usually two to three years, and early termination invokes the early termination penalties. These penalties usually encompass all the remaining lease payments aside from extra charges, hence making early termination pretty expensive. To drivers whose capricious life changes force them to change cars-including relocation or loss of income-these penalties often bring on additional financial burdens.

7. Insurance Costs

Leased cars have higher insurance than cars that are fully yours. Most leasing firms require comprehensive and collision coverages to protect their investments, even when you may not bother with such high coverage in your own car. This automatically ramps up the monthly insurance cost and contributes to the total price of leasing. Economical drivers will find these added insurance costs unappealing.

8. Limited Flexibility

Lease contracts leave little room for adjustments that may arise as needs change. Once you have signed the contract, you are bound by the terms included in it; this also includes the limit on the mileage of the car and the duration of the lease. Drivers who often find their needs upgraded-to a larger vehicle-or reduced, to decrease expenses within the lease period, find themselves stuck. Buying a car offers a bigger possibility to adjust according to evolution, whereas leasing would turn life into a static status quo.

9. Depreciation Considerations

Depreciation often plays a deciding role in whether leasing seems like a smart choice. Although leasing avoids taking the direct hit of a car’s depreciation, the leasing company calculates the monthly payments based on expected depreciation. That means you are paying for the car’s depreciation indirectly, without reaping any benefit from ownership or trade-in value. If the car turns out to be a better holder of value than it was expected, the leasing company-not the driver-reaps the financial benefits.

10. No Equity Buildup

You will not have equity in the vehicle from leasing. Unlike buying, whereby after loan payments over time you end up with ownership, leasing just offers temporary access. You get to the end of your lease, return the car, and walk away without a thing to show for your money. For those drivers looking to invest in value over the long term, it’s no return via leasing, starting from scratch once it’s time for another new vehicle.

The Financial Comparison: Leasing vs. Buying

Cost Analysis Over Time

Leasing sounds great because of the much lower monthly payments, but it always tends to be more expensive in the long run. The monthly payments for a lease usually cover the car’s depreciation throughout the lease term and the leasing company’s profit margin. There is no ownership when the lease is up, which would entail starting fresh with another lease or buying a car outright.

However, a car can be bought, although there may be larger monthly payments initially; with ownership, those eventually go away when the loan is paid. Ownership also allows years of driving without having monthly obligations to significantly cut costs. The difference is dramatic, and after ten years or so, it costs many thousands more to keep leasing cars rather than buying and owning a car.

Resale Value vs. Leasing Returns

Ownership is also a plus in terms of resale value. A fully paid car can be sold, thus giving cash back to the owner or trade-in credit for a new vehicle. This, in turn, will balance off the cost of upgrading into a newer car-a plus that can be seen as a long-term financial advantage.

On the other hand, leasing does not have any return. Payments cover only temporary use of the vehicle; when the lease is up, there’s no equity or trade-in value. For the driver who wants to maximize their investment, buying and reselling usually proves the wiser financial decision.

Who Might Consider Leasing Despite the Downsides?

Specific Use Cases

Leasing can still be a practical choice for some consumers. Business owners who must have a fleet of vehicles find leasing more economical in most cases, as the lease payments may be considered a business deduction against income taxes. Drivers who wish to drive a new car every few years without the concern of selling their old one also favor leasing.

This would be a better option for those who face temporary relocation or even short-term employment in another city. The lower up-front costs and fixed terms allow flexibility for those who will not keep a vehicle long.

Leasing Benefits for Short-Term Users

This generally proves most advantageous to the short-term user. The ability to drive a car under warranty for the duration of the lease precludes any unexpected repair costs. And, of course, there is the advantage of smaller monthly payments if a user is more concerned about immediate cash flow than long-term financial savings. Leasing offers added convenience: the convenience of just returning the car at the end of the lease for those individuals who would not like to bother about selling or trading in the vehicle.

Alternatives to Leasing

Buying New vs. Buying Used

Buying a new car has its long-term values, especially for those who want to own the car for many years. The cost is much higher in the initial stages, but long-term benefits include ownership, the building of equity, and resale or trading-in later on. In addition, new cars provide warranties covering big repairs in the first few years of purchase, therefore reducing possible maintenance costs.

Buying used saves a lot of money up front. Depreciation tends to hit hardest in the first few years of a car’s life, so a lightly used model can be a very good deal. While used cars might have higher maintenance costs, certified pre-owned programs usually cover reliability with their warranties and inspections.

CPOs fall somewhere in between new and used cars. These are typically late-model cars that have been rigorously inspected and may carry a manufacturer’s warranty. They have most of the advantages of a new car, like reliability and peace of mind, at a lesser price. For those buyers desiring quality but not willing to take the steep depreciation hit on a new car, a CPO program is a great alternative to leasing.