Category: Car Ownership infographic

What Are the Benefits of Leasing a Car? Learn the Pros and Cons

Decide whether buying or leasing a car is right for you.
 

Pros and Cons of leasing a car

Pros
  1. Lower Monthly Payments

    A monthly lease payment may be less than a loan payment on the same car. A lease payment accounts for the depreciation value of the car, rather than the total value of the car when it’s purchased.1

  2. Fewer Costly Repairs

    In most cases, a leased vehicle will still be covered under warranty—aside from accidental damage, it’s unlikely that you’ll have to foot the bill for most repairs. There’s a good chance that basic maintenance jobs (like oil changes) are covered in your lease agreement as well, so you likely won’t have to worry about unexpected repair costs.2

  3. A Safer Vehicle

    Leasing a car allows you to drive a nicer vehicle than you may be able to afford if you bought a car outright or got a car loan. As a result, you may get a car with better safety features.2

  4. Tax Advantages

    Self-employed? You may be eligible for tax benefits on a leased car. But, if you also use the vehicle for personal reasons, you may need to prorate the deduction based on a percentage of use.3

  5. Easy Returns

    When your lease ends, you can just return the car to the dealership. You don’t have to worry about finding out the car’s trade-in value or finding a buyer.2

Cons
  1. Higher Overall Costs

    Over time, leasing a car can cost more than buying one, especially if you lease multiple cars in a row and have monthly payments for years. In contrast, if you take out a loan to buy a car, you’ll eventually pay it off.2

  2. Wear-and-Tear Fees

    It’s important to return a leased car in pristine condition—or you may get stuck with a costly wear-and-tear fee. Kids, pets or just a few dings from parking lots can rack up wear-and-tear fees.1

  3. Limited Mileage

    Most lease contracts limit the number of miles you’re allowed to drive, typically 12,000 per year. Be aware of “low mileage” leases, which only allow 10,000 miles per year. If you go over, fees can range from 10 to 20 cents per mile.2,4

  4. Early Termination Fees

    Many car leases have early termination fees or other penalties if you need to cancel early. Sometimes, these charges can cost as much as the entire lease.2

  5. Costly Parts

    You’ll still have to pay for some maintenance, like new tires. Depending on your vehicle, this may be expensive, especially if it’s a nicer vehicle that has high-end wheels.2

Steps to Leasing a Car5

Get on the internet and do your research to decide if it’s right for you. Consider keeping the car for up to three years. This way, you have it when the manufacturer’s warranty protects the car. Look for a car lease calculator online to estimate a monthly payment for your area. Make sure leasing a car fits into your budget. It’s time to shop around. Look online or visit local dealerships to find a car that suits your needs. Visit dealerships to test drive vehicles in person. See the car up close, ask questions, and get a feel for how it drives. Once you find a vehicle you like, discuss a lease’s terms with a salesperson. Ask questions and see if you can negotiate a lower price. When you’ve settled on the right vehicle and contract, sign your lease and drive. Make sure to read all of the paperwork and get copies for your records.

Costs of Leasing vs Buying

Here’s a breakdown of the average total out-of-pocket costs over six years (the average length of time an American keeps a car) for a compact SUV.6

* An average lease lasts three years. To accurately compare to the average six-year loan / ownership of a vehicle, this lease estimate includes a second three-year lease.6

What to do when your lease ends

  1. OPTION 1: LEASE ANOTHER CAR

    If leasing is still a good option for you, return your car to the dealership and lease another model. You’ll still go through the inspection, pay a disposition fee (a fee at the end of the lease to prepare the car for the next buyer that can cost between $300 and $400) and wear and tear fees, but the dealership may offer incentives to lease again.

  2. OPTION 2: RETURN THE CAR WITHOUT A REPLACEMENT

    You can return a leased car without getting a new one. Maybe you want to take some time before buying a new car. Or maybe it was a second car, and you’ve decided to downsize. You’ll still go through the inspection and pay any necessary fees.

  3. OPTION 3: BUY YOUR LEASED CAR

    If you fell in love with your leased car, you may be able to buy it. It’s called “leasing to own.” Your lease should state the value of the car when it’s time to return it, called “residual value.” Beware: the actual value may be less than the residual value, so it’s recommended that you shop around first.

Steps to return a leased car8

  1. 1. PREPARE FOR AN INSPECTION

    If you see minor dents or paint chips that you can repair on your own, now’s the time. You’ll want to do everything possible to prevent additional wear-and-tear fees.

  2. 2. GET A SECOND INSPECTION

    If you get an initial inspection and then decide to make a few repairs, it’s okay to get a second inspection. It may help you save some money in fees.

  3. 3. PICK A DEALERSHIP

    Usually, you can return a leased car to any dealership that’s the same brand. But you may have the easiest experience returning it to the same dealership where you initially leased the car.

  4. 4. GIVE BACK EVERYTHING

    Clean out your car to make sure you have all your belongings. Collect all the leased items, including a second set of keys, floor mats, or spare tires. Otherwise, you may get charged for keeping these items.

How Leasing Impacts Auto Insurance

No matter if you lease or buy a vehicle, you’re likely legally required to purchase auto insurance. If you lease a car, though, you may have to pay for more coverage. Leasing companies often want to ensure their cars are fully protected—and this can mean requiring the lessor to buy more insurance protection. It’s important to discuss your insurance requirements when you go to negotiate your lease. The more you know, the better off you are.

You can also call your auto insurance company at any time to find out your policy details. It’s possible they may be able to help you negotiate a lower price or share details about your current coverage. Remember, your insurer is there to advocate for you.

   

  • Pros and Cons of Leasing vs. Buying a Car, The Balance, 2020.
  • Leasing vs. Buying a New Car, Consumer Reports, 2021.
  • The Tax Advantage of Leasing a Car if Self-Employed, Chron, 2021.
  • Beware of the Low Mileage Car Lease, Motor Biscuit, 2020.
  • 10 Steps to Leasing a New Car, Edmunds, 2017.
  • Buying a New Car vs. Buying a Used Car, Edmunds, 2021.
  • What happens at the end of a car lease? Policy Genius, 2020.
  • How to Return a Car at the End of a Lease, Edmunds, 2020.

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