So, you want to lease a new car? There are many things to consider before signing on the dotted line of any lease documentation. When is leasing a good idea? What are the risks? Can it really save you money or will it cost you in the long run?
The truth of the matter is that leasing an car can be a very wise decision given the correct circumstances. Just like any other financial decision, however, it is vitally important to analyze and weigh the costs versus the benefits of a new lease.
Mileage penalties
Perhaps one of the most important decisions when leasing an automobile is how many miles you will accumulate on the vehicle each year. Many people who live in urban and suburban areas would have to work quite hard to clear 10,000 miles a year. Yet other commuters who may live further from a population center can easily rack up 20,000 miles or more in as little as 9 or 10 months.
Why is this important? The monthly payment on a lease is largely based on miles allowed per year and if you go over the amount listed in your lease agreement, the penalties can be staggering.
Some companies charge as much as 20 cents per mile overage fees. Using that formula, a 1000 mile overage will cost you $200 at the conclusion of your lease. Keep in mind that most leases come with 10,000, 12,000 or 15,000 miles-a-year options.
Yet if you stay under these limits, your monthly payments on a lease versus a purchase can be up to 40% lower. This means serious consideration for those who desire a low monthly payment.
Cost of repairs
Do you hate paying for pesky issues arising with your car? Most leases include bumper to bumper warranty coverage for the life of the lease. In addition, many dealers offer a free loaner program and throw in supplemental "total loss" insurance for free.
What does this mean to you? If you have a mechanical problem with your car, it will cost you nothing and you will get a free loaner to use until the issue is fixed. Also if the car is ever stolen, the total loss coverage will fill any gaps with you insurance and the current value of the car.
Other considerations
Another important question to ask yourself before leasing is how important it is for you to own the car at the end of your payment period. In exchange for the lower monthly payment that comes along with a lease, you turn in the car at the end of the lease.
It is often possible to buy the car after the conclusion of the leasing contract; however the price of such a buy out is usually several thousand dollars more than the car is actually worth at that point in time.
If you like having a new car every few years, this is actually good news. You can simply drop one and move on to another. Yet if you are set on owning your vehicle at the end of the contract, then leasing is most likely not the option for you.
The final two considerations for leasing a vehicle are often the most overlooked. Damage and maintenance penalties and higher insurance rates can really cost you in the long run. Many dealers charge two or three times the industry average for repairs needed or worn items present on the vehicle when you turn it in. This can be anything from worn tire treads to a stone chip in the windshield.
Read the fine print
Make sure you read the fine print on this before signing the lease paper work. In addition, be prepared to pay an average of 5% more per year on your insurance rates.
Leasing can be the perfect option with the right set of circumstances and a nightmare for those who do not do their homework. If you follow the guidelines above, you should be well prepared to make an educated decision about the pros and cons of leasing a vehicle.
See also: Auto lease vs. buy calculator
