The Good and the Bad of Car Leasing
7 points about car leasing you should consider.
If you’re shopping for a new car, financing is an option for people who don’t have enough money to pay cash. Besides financing, leasing can get you behind the wheel of a new car too. Car leasing has several advantages and disadvantages, offering both good and bad points for consumers. Let’s take a look at what car leasing can do for you as well as it can do to you if you’re not careful.
Lower costs — Compare your monthly rate for financing to your monthly rate for leasing, and leasing can prove to be more affordable. Moreover, leasing can get you behind the wheel of a car with less money down, an attractive option for consumers that don’t want to fork over large sums of cash.
No resale issues — Buy a new car and at some point you’ll be selling it or trading it in for a new car. With car leasing, there are no resale issues as the car is “rented” for a stated amount of months and then returned to the dealership. Leasing allows you to turn in your car keys, and walk away without the hassles of selling a car.
Credit problems — Whether you buy or lease a car, your credit rating can have an effect on whether you get a new car or not. Although there is such a thing as a bad credit car lease or a bad credit auto loan, in each case you’ll pay more for a car or a loan if your credit score is low, especially if it is below 600 points. Clean up your credit first before buying or leasing your next car.
Hidden costs — Although lease deals are transparent, you may think that there are a number of hidden costs included. These costs may not be hidden, but they can be easily misunderstood. For example, if your car is damaged or shows signs of excess wear and tear, those costs will be determined at the end of the lease and you will be billed accordingly. Keep in mind that if you go over the allowable mileage limitation, you’ll be charged for each mile above that amount. For instance, if you drive 3,500 miles beyond the allowable limit and your charge is 20 cents per mile, you’ll pay an extra $700 at lease end.
No ownership — Car leasing means that you never own the car that you drive. Instead, you’re renting it and must return it at the end of the lease term. If you like the car very much, you have an option to buy it for an amount that is typically determined at the start of the lease term. This amount may be negotiated, but only if the leasing company wants to make a deal. Not owning a car may be all right with you, but it is something you must keep in mind when you plan to lease a car.
Tax breaks — You may be able to take advantage of tax breaks when leasing your next car. Typically, these tax breaks are available for small businesses, but they’re also available for new sole proprietors. Read up on current IRS rules to confirm your eligibility before leasing a car. States may offer incentives too, charging sales tax only on your monthly payments, not the full value of the car.
A better car — One big appeal about leasing is that it typically helps you to get behind the wheel of a better car. For example, if your budget is for a BMW 3-Series and you want a BMW 5-Series, you can typically afford the pricier car based on the lease payments and related costs. Be careful here though — although BMW includes free maintenance with your lease payment, other manufacturers may not. Know what costs are involved with leasing and account for these costs before agreeing to a deal.
Certainly, leasing is not for everyone, especially for people whose car needs may change quickly or whose financial situation is not stable. You don’t want to be stuck with a car you don’t like, but there are companies such as Swapalease.com and LeaseTrader.com that make it possible for you to find someone to take over your lease. For a fee, of course.