Deciding whether to buy or lease a car is an unavoidable deliberation that is likely come in the life of most adults. Whilst weighing our options, we inevitably come across voices that strongly prefer one side or another and insist that it is that option which is indisputably superior. Of course, the truth is never this straightforward. Those people who claim so strongly one way or another aren’t exactly wrong, they just mistake the obvious superiority of one choice under a certain set of conditions for the better choice in general – a ‘better in general’ which cannot really be claimed.
Undoubtedly, in the lease or loan/buy debate, the strongest voices often come out in favor of buying or loaning. This is because leasing is not an economically advantageous investment – you do not come out the other end with an asset, you will probably end up spending more money in the long term, and so on. Leasing practices can be predatory, and the terms of a lease may be risky when you cannot be sure about the conditions of your driving and therefore the condition of your vehicle over the duration of its lease.
Those who speak against leases do so with good reason. I don’t want this blog to muddy the water in that regard: if you are uncertain about your monetary acumen, if money is tight and you are simply trying to spend as securely as possible, or stretch your dollar as far as you can, then you probably shouldn’t lease a vehicle. Nevertheless, there are use cases, merits for the more adventurous, occasions where leasing deserves consideration. The following is a deep dive into those circumstances:
What Is a Car Lease?
A car lease is one of the three primary means by which to come into possession of a vehicle. Whereas a loan – paying for a vehicle over time – or buying outright – leaving with full ownership of the vehicle off the lot – nets you an asset which is yours to use, sell, or abuse, a loan is more like renting; just as one might do with an apartment or house. These three options span a spectrum where convenience or accessibility occupies one end, and security the other. If you leave a dealership with full ownership of your car, i.e., you pay it ‘in cash’, whatever happens thereafter bears no hidden expenses, no unfinished business. You can sell and recoup as much of your initial cost as possible (perhaps it will appreciate – something that rarely happens to cars, except in the hard-to-predict long term), or you can lose your car to theft or accident and know what you have now is what you have to put towards your next ride.
Loans represent a shift away from this transparency and security because of the term over which they are paid down. Paying off a car over term allows someone with less in their bank account to manage the payment of an expensive good like a car. This is how a loan affords greater accessibility and convenience. It is accessible for those who would not be able to come into a vehicle otherwise, and it is convenient for those who would prefer not to save up for a full payment off the lot. This is an advantage for the latter group whether they simply want the vehicle early or need it – for work or family – immediately. The disadvantage of loaning comes when a car breaks down outside of warranty, is stolen, or for whatever reason can’t be sold to recoup costs. In each of these three situations the owner is still paying for something they no longer have access or use. If you get another car during this period, you will find it costing you more monthly – paying, essentially, for two vehicles at once – and this might force you to get a lesser vehicle the second time around. As with all payment plans and long-term financing, these situations invite sloppy money management and when multiple are active monthly bills may become unmanageable.
Finally, leases amount essentially to the rental of a car – with a few modifications when compared to renting a home, for example. It is more common for a rent-to-own model to be adopted with vehicle leases, and the terms of vehicle leases aren’t quite well exhausted by the housing rental analogy. The value of an apartment rental is a significantly more abstract quantity, where rental prices can be manipulated and increased by a multitude of accidental and deliberate market events. The monthly cost of a car lease – usually established through contracts of a three or four year length – is determined on the basis of the different between the initial value and the depreciation anticipated to occur over the course of the lease. While this makes up most of the price, there are also convenience fees, initial fees, and monthly interest accumulation that affect the total and monthly cost. As such, even if you lease to own you will spend much more money to get to the same place as a loan. This is especially true if you do not have a strong credit history, insurance, or happen to be in possession of a spotty driving record.
Despite these fees, the primary draw of leasing a car remains: in the short term – that is, considering strictly the expense of the monthly payments and initial fees, bracketing costs that might be recouped when a car is sold as one’s own asset – leases cost less money. Assuming at least that you manage to remain within your lease’s use restrictions, which is often the toughest fact to swallow, and where the most risk comes from in leasing a vehicle. These use restrictions limit the number of miles you are permitted to put on during each pay period (e.g., ten thousand kilometers a year), restrict what kind of modifications you can make to the vehicle if any are permitted at all, and most importantly demand that the vehicle be maintained in a certain condition.
Keeping the leased vehicle as it should be is difficult to ensure. As leased vehicles are almost always new, manufacturer warranty protects against defects and covers routine maintenance, saving the lessee some money there. However, unless you are in possession of an astoundingly complete insurance plan – which are sometimes offered as a part of leases – the kind that guarantees even a scrap-job, you are bound to be uneasy driving your vehicle, knowing that parking lot dings could be costing you dearly.
When Might You Want to Lease?
If you are looking to lease a car, a few basic conditions ought to be met first. Whereas leases can be popular amongst those who want to go beyond their means, leasing on the edge of affordability to get a ride well outside of their budget, an informed lessee ought to have the means (i.e., financial ability, insurance, credit history, etc.) to withstand the serious risks that can come with leasing. You should be confident in your driving capability and have a clear idea of how much driving you anticipate to do with this vehicle. If these conditions are yours, then you can lease with an easy conscience.
There are a few reasons to lease, and they were alluded to earlier – chief of them being convenience. If you are not trying to make money or stretch dollars when spending on a ride, leasing allows you to change cars frequently and forego the potential hassle of selling a car. If you have a preferred motor company or model, leasing could allow you to always drive that manufacturer’s newest output – taking advantage of safety and leisure technology – even driving a more luxurious feature package of that model than you might when leasing or in any other more conventional case.
While this mode of conduct might appear like something of an indulgence, there are genuine pragmatic advantages to be considered here. Vehicles are becoming significantly safer all the time and having frequent access to the newest safety technology can be a serious source of peace of mind. Certain vocations especially make leasing appealing, though for quite different reasons. It is difficult to deny that cars play a significant role in image, status, public and professional perception. If you are in the kind of position where taking account of these things matters, leasing has a strong appeal. Money is likely stable in one of these positions, making the expense of leasing less of a concern. Meanwhile, being able to drive the latest and greatest (perhaps even greater than otherwise likely) ensures that a certain kind of conscientiousness is portrayed – when always being on top or ahead of the game matters, leasing streamlines part of that process.