In many cases, leasing is more profitable than buying or borrowing. However, it’s not a universal solution.
Whether car leasing is an option for you or not will always depend on many factors. Are you buying a car for personal use or business? How often do you want to change cars? How often are you going to drive a car? Can you afford to buy a car right away or are you planning to use financing? Are you ready to do your own maintenance?
When choosing a way to purchase a car, non-obvious questions may also matter. For example, how much are you ready to understand the terminology specific to a certain type of contract?
The decision will, of course, come down to your budget and your needs. Let’s see when leasing is not the best solution for you.
When Leasing Is Not the Best Choice
When you buy a car, you are the full owner and you can do whatever you want with it. If this is a loan, then during the payment period you cannot sell it, but at the time the lease expires and the car is bought from the leasing company, the vehicle is completely yours.
When you lease a car, you do not own it. You can roughly compare leasing with renting a home, not with a mortgage.
The vehicle belongs to a leasing company, which provides the right to use the car while you fulfill your obligations under the contract. If the leased car is destroyed or stolen, the leasing company will receive a refund from the insurance company, and you will need to lease or otherwise finance a new car for yourself.
Do You Use Your Car All the Time?
When you own a car, you can drive it as much as you want, including very little if you want to save the value of the car. With the exception of the price of fuel and maintenance, there are no additional costs for each kilometer traveled.
Leasing may have mileage limits, and when you exceed these limits, it will incur additional costs. This limit is set depending on the car model.
If you can foresee your yearly mileage, that’s not a problem. But if you do not yet know how much you drive, then there is reason to doubt about leasing.
Would You Like to Pimp Your Ride?
If you own a car, you can do whatever your sense of taste tells you. If the added modifications increase the value of your vehicle – great, you can return your investment when you decide to sell the car.
If you pay off a loan, then the contract allows a limited number of modifications (for example, a roof rack) before the end of the payment period, and with major changes, you will have to wait for the last payment.
But in leasing, only reversible modifications are allowed, because you must return the car to its original appearance before transferring it to the leasing company (taking into account natural wear and tear). Even if the changes only increase the value of the car, the leasing agreement most likely says that you need to return the car the way it was given to you for use.
Are You Ready to Pay for a Car All the Time?
Most lessees at the end of the leasing period transfer their car back to the leasing company without receiving any cashback or advance payment. But in fact, after inspecting the car, you may have to pay some money in excess for increased wear or repairs.
Many leasing companies offer to trade in a car, assuming that the proceeds are just enough to pay the down payment on a new lease – in general, this is suitable for you if you want to change a car every few years, making constant lease payments.
The main difference between a loan and a lease is that monthly payments end as soon as the cost of the loan is repaid, and the car becomes yours.
Are You Thinking of Selling a Car?
When you choose to lease, you are limited in what you can do until the end of the lease term. If, after buying a car, after a year you find that it does not suit you, you can sell it. Then find another car – reliable, powerful, and better suited for your needs, and use it for the next ten years.
The lease agreement has clear restrictions on how and for what you can use the car. For example, it is forbidden to drive a car outside the country without a written agreement with the leasing company.
Or, if you are going to use the car in leasing, for example, in car sharing, pay attention to a couple of things. First, make sure that the leasing agreement does not prohibit direct operation in leasing. Such a business involves a very high mileage, so there should not be a limit that would ultimately cost huge overpayments. Such a car will certainly be subject to increased wear and tear, which again can cost serious money by the end of the lease term.
Therefore, if you are going to use the leased car for anything other than personal use, check with the leasing company that such use is acceptable.
Do You Have a Good Credit History?
It is possible to take out a lease with a bad credit history, but it can be more difficult and more expensive than when you have a good one. In general, leasing companies prefer reliable clients and it is not always possible to meet the lessor’s requirements. It may take a long time to prepare the company’s financial figures, but in the end they may not be suitable for the lessor.
In the case of a loan, although it is more expensive, it is easier to find an option with such a credit history that is currently available. To find the best, you can get pre-approved offers from several banks without leaving the car dealership.
What About Insurance?
The leasing company is obliged to use the most comprehensive insurance options that would cover the remaining payments under the leasing agreement in the event of a total destruction or theft of a car. Given that, the choice of an insurance company is usually limited to a few partner companies of the lessor. Often, the cost of insurance is already included in the lease payment, so when drawing up a contract, you need to determine what the actual cost of coverage is.
Most dealers will also not mention at the time of purchase that insurance can be obtained elsewhere. Therefore, before buying a car, you need to do research on how much the coverage of your car will cost. Print out the best offer before going to the showroom so the dealer can beat it.
The bottom line
Leasing a new car has its issues. It is very easy to get confused when faced with the language and terminology of a lease agreement.
Unfortunately, these kinds of misunderstandings can lead to confusion about the real benefit of the deal. If you encounter something you don’t understand, then you better stop and deal with it before you sign the contract.
It is likely that you would prefer to consult with your lawyer and accountant before agreeing to an offer. If the lessor draws your attention to the delay in signing the contract, then it is obviously worth interrupting the work on concluding the contract.
Whether you decide to buy a car or arrange a lease – in any case, this is a deeply individual decision. There are pros and cons to either method. Think carefully about your desires, finances, and circumstances before making a decision.
