Buying a new car can be a scary proposition today. With car prices now often exceeding the cost of a new home in a small town, the idea of financing such a huge amount for only six or seven years is daunting. To reduce payments, you need to have either a late model trade in that is in great condition with low mileage, or an enormous down payment. This drives many potential buyers away from the new car market and into the a used vehicle. Dealers have countered in recent years with what seems to be sweet deals on a new car lease arrangement.
Leases can be a good option for some buyers.
If your job requires you to have the image that a new car projects to be successful, a lease might be your ticket to satisfy the need. Lease payments are frequently twenty percent or more less than a new car payment. The amount that has to be paid down will generally be a lesser amount than a down payment for that same car if you are purchasing it. The buyout at the end of the lease may even be a good option if you choose to buy the car. Many who lease cars find it nice to just be able to give the car back at the end of the lease and walk away.
For many buyers, a lease is not always such a great deal.
Leases come with mileage restrictions written into the terms of the lease. With a new car purchase, you can drive you new car as many miles as you want. Although each mile reduces the value of the car, you can choose whether or not to pour on the miles or just drive a lesser amount. Because dealers rely on the residual value of the car to offset the difference between the total amount of the lease payments and the full value of the car, they have to force you to drive less miles.
You can drive more miles than the lease specifies, but you will have to pay for them at the end of the term.
A value is assigned to excessive miles that are put on the vehicle. If the lease calls for a maximum of 50,000 miles over a five year lease, you will have to pay a mileage penalty for every mile above that amount when you return the car when the lease expires. At a rate of forty or fifty cents per mile, this can grow to a hefty sum that will be due.
Having an accident can reduce the resale value of the car when the lease is ended.
Depending on how your lease is written, an accident can create a situation where you will owe money above the lease amount. Even if the car is fully repaired, it will have an accident report that follows it to the new owner. Potential buyers of the leased vehicle may expect deep discounts for buying a car that has had significant damage from an accident. Dealers are aware of this and may penalize you accordingly.
You have to maintain the car and have records to prove it.
While many car owners do keep good maintenance records on their vehicles, just as many do not keep these records. One of the agreements that you make when you lease a car is to keep it regularly maintained and make all repairs completely and quickly when needed. Sometimes, the dealer will require you to have the car serviced by their mechanics to be able to verify good maintenance. Good car upkeep just makes sense, but even the best car owners sometimes cheat a little on this if it is not convenient. Cheating on maintenance with a leased vehicle will cost you money.
At the end of the lease, you have no equity in the vehicle.
If you are one of those people who relies the trade in value of your car to be able to afford a new one, this can be a big problem. You will pay a decent sized down payment or trade in to get the lease started. The payments will be less than a car loan, but they may still be large. When the lease ends, you will need to buy another car. It is possible that without a trade in that you could have trouble affording one. The dealer owns all of the value left in the leased vehicle. Unless you can save a few thousand dollars to pay down on the next lease, you will be walking a lot more.
The buyout at the end of the lease is usually not a particularly great deal for you.
Buying a leased vehicle after the lease expires is roughly the same as being asked to buy your own used car. Most people are not really interested in paying for a used car that they feel like they already own. At that point, you are looking at buying a five year old vehicle for top dollar. There is really no negotiating because you have already signed an agreement that says you will pay a set amount for the car at the end of the lease if you choose to purchase it.