What is Wrong with Leasing?
We often hear some of the following things that seem to indicated that leasing is a bad way to acquire a car:
Leasing is the same as renting, and you have nothing to show for your money
Leasing is similar to renting, although it’s actually a form of financing, like a loan, except that you only finance about half the value of a vehicle, not the entire value. An average vehicle depreciates in value by about half in 3 years. It’s the depreciation that is financed, which means monthly payments are about half of loan payments for the same car, same 3 years. In fact, a purchased vehicle also loses half its resale and trade value in the same time. Whether you lease or buy, you have nothing to show for the depreciated value.
Leasing is good only if you have a business use for your vehicle
It’s true that business owners can deduct the expense of leasing from taxes, which is not possible with a non-business lease. However, leasing offers additional benefits which makes it attractive to non-business consumers. See Leasing Pros and Cons for more details.
There are mileage and damage penalties in leasing
It’s true. One of the requirements of leasing is that you stay within the agreed-to mileage allowance, or pay a per-mile fee at lease-end. But if you know you drive excessive miles or don’t take good care of your cars, you shouldn’t lease. There are also charges for excessive wear or damage at lease-end although most lease finance companies are very liberal in their penalty policies. Many people have leased several cars over many years and never been charged a dime.
Leasing is a dealer scam to make more profit
Not true. Leasing is simply a financing alternative. However, customers who don’t know how leasing works may well pay more than they should because it’s a bit more complicated than buying with a loan, and dealers may take advantage.
Leasing costs more than buying
Yes and no. Monthly payments are considerably less with leasing than buying with a loan, same term. If you normally trade cars every 2-4 years, you save money with leasing. If you like to keep your cars for years, leasing a car every 2-4 years is certainly going to cost more in the long run.