11 Things Car Dealers Won’t Tell You About Leasing
If you're in the market for a car or wanting to upgrade, the shopping experience can be a daunting one. We've asked auto industry experts for the inside scoop to help you make a better and more informed decision.
You Need Better Credit to Lease a Car Than Get a Loan
Though it may sound like it should be the opposite, getting a good deal on a lease generally requires excellent credit, explains Mike Ouyang, marketing lead for auto loans with LendingTree in Charlotte. "Financing is more readily available for those with less than stellar credit." Find out the 34 secret car buying tips your car dealer won't tell you.
It May Be Hard to Get a Loan
Most banks, credit unions, and other finance sources don't offer credit for leases, says Sonia Steinway, co-founder of auto finance start-up Outside Financial in San Diego. "That means the average customer is restricted to using captive financing (like Toyota Financial Services or GM Financial), at whatever rate that lender is willing to provide," Steinway says. "For customers with great credit who are eligible for sub-vented financing (i.e., subsidized), that's not a problem, but those with lower credit scores may find they can get much better interest rates on a purchase loan." Plus: You can do car maintenance yourself; here are 100 examples.
Leasing is Cheaper, Up Front
Typically, you'll have a lower monthly payment if you lease versus buy, even for the same car. That means you can usually afford a nicer set of (leased) wheels.
You Can Trade In for a New Model Hassle-Free
If you're the type who likes to upgrade your iPhone the minute a new one comes out, you'll likely enjoy leasing a car. At the end of your lease, typically three years, you can walk into the dealership, drop off the keys, and pick up a new car that day, without going through the hassle of selling your old one first. Plus: These are the best automotive tools at Harbor Freight for home mechanics.
Someone Else Will Do Repairs For You
Because most leases are for three years, they are almost always still under warranty (most new cars have a three-year warranty). Additionally, "Some leases even include basic maintenance, so your only costs will be insurance and fuel," reports U.S. News and World Report. Don't miss these other things your car mechanic won't ever tell you.
You May Have to Limit How Much You Drive
If you have a long commute to work, frequently drive to clients, or if you're a weekend traveler, a lease, which puts a cap on yearly mileage, may not be the best fit. "Mileage restrictions are built into nearly all lease contracts," clarifies Ouyang. "Driving over the agreed limit will lead to steep excess mileage charges." If you hit the road frequently, buying may be a better option. Here are more ways you're completely wasting money on your car.
Your Side Hustle May Be an Issue
Thinking about making a bit of extra money using a leased vehicle? Check your contract. "Some contracts don't allow you to use your leased vehicle for ride-sharing programs such as Lyft or Uber, says Ouyang. "Secondly, any miles you use towards a ride-sharing business means fewer miles for your own personal use." If you need a car for a side business, consider buying.
A Lease is Effectively a Long-Term Rental
"If you own your car, even though it's a depreciating asset, you'll likely still have some equity in it, once you've paid off your loan," Ouyang says. "At the end of a lease, however, you may even owe money should you have damaged the vehicle or have excess wear. There's no cash or value you can use to put towards another car." Plus: Check out these 13 brilliant automotive handy hints.
Know Your Exit-Strategy
At the end of your lease, you'll have the option of giving back the car and leasing a new one, or buying it in what's called a lease buyout, says Ouyang. "To keep the car, you have to pay the residual value or expected worth of the vehicle at the end of your contract," he says.
Some contracts allow for an early buyout, which allows you to purchase the leased vehicle before the end of the lease contract. Be cautioned that there are sometimes associated fees and, generally, a lease-end buyout is a better deal. With both types of buyouts, you'll need the funds to do so. "Lease buyout financing is available and the process is similar to a standard auto loan," Ouyang adds.
In the Long Run, Owning is Much Cheaper
When you purchase a car in cash, the car is yours outright. If it is financed, the lender owns the vehicle but only until your loan is paid off. And when you lease a vehicle, the leasing company always owns the car, says Ouyang. "Leasing may save you on monthly payments, but the money you spend isn't going towards ownership." With a lease, you will have a monthly car payment. If you own, you could potentially enjoy years without having to make monthly payments. "And, most cars today have significantly improved reliability so you could go for quite some time without worrying about major maintenance or repair costs," he adds. "So if you have a six-year loan, and keep the car for ten years, that's four years of no monthly payments, which makes for a potential of thousands in savings." You'll want to take note of these maintenance tips that will extend the life of your car. Plus: Learn how to lower your car insurance bill.