Two of the most common questions we get at Kelly Alfa Romeo are what is leasing and does it make sense for me to lease? Leasing is simply another way to buy a car. It allows you to drive a new vehicle without paying a large sum of cash or taking out a loan. You simply make a small down payment followed by monthly payments for the term of the lease. When the term expires, you return the vehicle.
There are pros and cons to buying and leasing that might help you decide how to pay for your next car. For example, a lease requires little or no money down and offers lower monthly payments. But when the lease ends, you will have some decisions to make. Here are your options at the end of the lease:
- Purchase the vehicle. You can buy the vehicle for the purchase price listed on your lease agreement. This is known as your buyout. You can finance the buyout and make monthly payments or puchase the vehicle outright with cash.
- You can turn the lease in and walk away. Assuming you are under the allotted miles and there is no damage to the vehicle, this is a quick process. You will need to have an inspection done at the end of the lease. You will be responsible for any damage but if there is none, you can turn the vehicle in at the dealership you purchased it from and walk away with no further commitment.
- You can trade the lease in towards another purchase. The dealership will conduct a professional appraisal of the lease and essentially buy the lease from the bank for resale. If you have equity, you can put the equity towards your next purchase. If the appraisal comes in under the buyout price of the lease, you can roll what you owe into the next loan.
- You can trade the lease in and lease another vehicle. This is the most common option our customers choose. Many manufacturers offer programs to incentivize you to lease another vehicle. Some will waive remaining payments or any excess wear and tear charges to help put you into another lease. Please check with your originating dealership to see what programs are being offered.
On the other hand, buying a car is more expensive initially and the monthly payments are higher. But at the end of the loan, you will own the vehicle. Buying is a great option if you tend to keep your vehicle for a long time, drive a high number of miles per year or want to be free from a car payment once you have paid off the loan.
Here are a few more factors to consider while deciding between leasing and buying:
- You can drive a more expensive car for less money.
- You can drive a new car every few years.
- There are no trade-in hassles at the end of the lease.
- You will usually always have a vehicle that is covered by the manufacturer's warranty.
- Your car will have the newest safety and convenience features.
- There's more flexibility. You can sell the car whenever you want.
- There are no unexpected mileage penalties for increased driving.
- In the long run, your car expenses will be lower.
- You have the right to modify your car to your tastes.
There are advantages and disadvantages to both leasing and buying. It really comes down to personal preference. Some of the questions you should ask yourself to determine if you should lease or buy are as follows:
- How many miles per year do you typically drive? People who drive more than 15,000 miles per year are usually not good candidates for leasing as you are only allowed a set number of miles for the term of the lease. Usually 36,000 or less. You do have the option to purchase more miles at a discounted rate at the beginning of the lease.
- How long do I typically keep my vehicle? People who keep their vehicles for 5+ years usually prefer to buy their vehicles.
- Do I want a new vehicle every 2-3 years? If you love that new car smell, leasing is for you!
- In the long run, what costs more? Over the long term, leasing is more expensive than buying but many people find the advantages of leasing outweigh the added expense. If it strictly comes down to dollars and cents, buying is the way to go.
- Do I typically modify my vehicles? If you like to put on new rims and an aftermarket exhaust, leasing is not an option. You are not allowed to modify the vehicle and if you do, you run the risk of voiding your warranty. If you modify your vehicle, you should always buy it rather than leasing.
- Will I be using my vehicle for business? Leasing is a great option for people who use their vehicles for business as long as they are not driving more than 15,000 miles per year. There are great tax advantages to leasing but always check with a tax professional.