Leasing Vs. Renting Costs

A lease is usually a long-term rental agreement that offers the right for the exclusive use of a car for a specified period of time and at a fixed monthly charge. This is already a popular way of owing a car in the United States and many drivers consider leasing a car as a alternative to buying one with a dealer finance plan or bank loan.

One of the major cost of buying a car is depreciation. Most of the new cars will lose more than half their initial value after the first 3 years of ownership. While new car prices are reasonably inexpensive at present, their values are also correspondingly lower. This means that by buying now, it your car will be worth less than what you bargained for in a few years’ time.

Understanding leasing

By leasing a car, you will be able to avoid unexpected costs as you will pay a fixed monthly fee during the term of lease. There may be an extra charge on top of the monthly bill for the purpose of maintenance. Most leasing companies usually demand a non refundable deposit which is usually around 3 monthly payments. Usually at the end of the lease period (usually 2 to 3 years), you hand the car back to the owner. It is the duty of the leasing company to sell the car and pick up the tab for depreciation. The monthly leasing payments are much lower as compared to buying the car on finance. However, the overall cost after the end of 3 years will be higher, as you will not benefit from the sale of the car at the end of the period.

Model of vehicle

For a car that is in demand such as the VW Scirocco, it should hold 63% of the original value after a period of 3 years and this means that it is cheaper to finance the purchase. On the other, hand, the first depreciating models such as the Ford Fusion will only retain 36% of their value after as period of 3 years, and it is therefore advisable to lease. If your preferred car has a strong resale value, you should consider buying it instead of leasing as you will recoup a huge chuck on the buying price after selling it. On the other hand, there is no point in buying a highly depreciating car; it is better to lease it.

Factors to consider

There are several important factors that you need to remember when making a decision whether to lease a car. One of these is that you pay for any damage when leasing. The projected future value of the car is also important when deciding whether to buy on finance or lease.

Pitfalls for leasing

One of the demerits of leasing is that most leasing contracts have a limit on the fixed mileage (usually 10,000 miles per year, but you can agree on lower or higher limits in advance). When you exceed this limit, it may result in extra fees. The car should also be returned in what is termed as “reasonable condition.” This means that you may be charged extra fees for excessive wear and tear.