Jun 072014
 

why lease a carWhen asked, why lease a car, I’ve found most often that this is a derogatory statement towards car leasing rather than an honest question from the one who asked. Usually, the question is followed by a bunch of car leasing myths and other propaganda aimed at shooting down the leasing prospect’s mere mention of the idea. The goal is to convince me that leasing is not only a bad financial decision, but an extremely irresponsible idea on my part and I should feel guilty for even pondering the careless and reckless curse I am about to put on my future security and life. While that might sound pretty extreme, it is more true than you might think. That’s okay; I’ve grown immune to such criticism and have learned not to let it bother me in the least. In fact, I always see it as an effective opportunity for a proper education. One cannot possibly win an argument over what one does not know. Why lease a Car? That is not so much a question, but a lesson waiting to be taught and learned. Before, we engage in such a course, there is some necessary background to cover. First, it helps to understand the mindset and background of your typical, leasing skeptic.

Understanding the Leasing Skeptic

Over the course of the last dozen cars or so that I’ve leased, I’ve learned a great deal about the negative bias against leasing.  For starters, there are a great number of people who have never leased a car before and know absolutely nothing about leasing. But, that won’t stop them from telling you or me that leasing is a bad idea. Let’s refer to these people as, leasing skeptics. I know where the conversation is heading before I even begin to formulate my first response to such a person. The next thing you know, the leasing skeptics are repeating every single, car lease myth and horror story they’ve heard from other leasing skeptics who have also never leased a car before. To see the list, refer to one of my previous articles, Car Leasing Myths. To fully understand the leasing skeptic, one must delve a little bit deeper in their psyche about car ownership, financing and risk-taking. There is no better way to do this then to take into account the many half-truths they will rattle off to us in order to scare us away from leasing cars. I call these half-truths because many of them are true on the surface. However, none of them are good reasons not to lease cars. Below is the most popular, half-truths list against leasing cars.

Top-5 Half-Truths Against Leasing Cars

    1. You will never own the car: This is not only true, but it is the primary reason many of us lease cars. What is it we want to own? We all know that cars depreciate by thousands of dollars each and every year. While most of the depreciation hit is taken in the first 3-5 years, this also happens to be the time maintenance and repair costs rise. Old cars will need new tires, new brakes, belts, hoses and other potentially expensive maintenance. If you’re fortunate, you will not incur an expensive repair item in addition to the inevitable maintenance. For instance, I once had to replace an alternator my fifth year into a 1996 Infiniti to the tune of around $700. So, the question is, is owning a car a good or a bad thing? If you’re on a highway in the middle of no-where, in the middle of the night and your car breaks down, chances are, you’ll wish you had never owned the car in the first place. New cars offer security and piece of mind. Old cars and car ownership are hobbies for those who enjoy working-on, modifying and fixing up old vehicles. While, there is nothing wrong with these hobbies, don’t assume they equate to sound financing and security both on and off the road.

  1. You will not Save Any Money by Leasing Cars:  One can make a case for this half-truth on either side simply by framing and comparing the terms and circumstances in a way that is favorable to them.  Before we get to that, you will need to clarify the question. Does it mean that you will not save any money leasing a car over buying a brand new car or does it mean that it is cheaper to drive a used car that is already paid for? In the first situation, you will have to compare the cost of the purchase loan terms over the life of the loan. At the end of a 48 or 60-month loan term, the car is paid off and you own it, but what do you own?  The car buyer has equity which can be used to trade-in for another new car or he/she can keep the car and enjoy Car Ownership (see # 1 above). Most people who compare the loan purchase, greatly over-estimate the payments of a 36 month lease. And remember, that during the 36-month lease term, you will not incur any maintenance costs such as tires or brakes. I’ve often had to replace brakes and tires after 3-4 years. Usually, the comparison between the two is a wash. The amount you’ll save on monthly payments and maintenance are equal to the equity you’ve got from your purchase. Of course, you can pay cash for the car, but there is a reason for the motto, Cash is King. Whose cash is it? You’ve blown all your cash up front, you own the car, but for how long will you keep it and how much has it depreciated since the day you first drove it home? What have you saved and for how long? Finally, you can buy a used car.  If your only goal is to save money, yes, you will probably save money over the long haul by driving used cars all of your life and that includes comparison of both leasing and purchasing of new cars.  So, point number 2 really should state that you won’t save any money by driving new cars. Why lease a car? Because we want to drive a new, safe and reliable car every 3-4 years, not because it is cheaper than owning a used car.
  2. Leasing has Hidden Fees and Costs: Are there some hidden fees in automobile leases? There certainly can be just as there might be with any sales transaction; whether a loan or the cash purchase of a new or used car. How many of us would pay cash for an inexpensive, used car without carefully looking over the vehicle with a fine toothed comb. That includes looking for hidden, mechanical problems as well as title and car history. When buying a brand-new car on a 60-month loan, there are also some potential hidden costs and fees that could bring your payment up. That includes dealer and handling fees, add-on fees, warranty extension fees and excessive financing charges. These same, hidden fees are also possible on a car lease. These days, because of federal consumer laws and protection of their reputation, dealers have to be very careful about disclosing information to you when selling or leasing a car. It is wise to pay attention to all of the costs before you sign the paperwork. Many uninformed leasing skeptics will throw out the open-end lease to scare you. Make sure your lease is closed-end. This means, the agreed-upon value of the car remains the same at the time you turn in your lease. An open-end lease is not something I have ever seen from car dealers, nor is it even brought up any more in the last few decades. In fact, it may not even be legal anymore, so it would be very surprising if you were to encounter this at your dealership, but all you have to do is ask and confirm that you are getting a closed-end lease. The other hidden fees and costs to be aware of our damage and excess wear and tear. Remember, even when you own a car, free and clear, damage reduces its value. It is no different with leasing. If your car is unreasonably damaged, you will have to pay for it. As for reasonable wear and tear, most dents under the size of a quarter and regular wear on the tires is completely acceptable at no additional cost when you turn the car in. I have leased well over a dozen cars in the last 30 years and not once have I ever had to pay an extra dime for damage or excess wear and tear. Take care of your car. One of the reasons we lease is because we enjoy driving and admiring new cars.  Not so much a hidden fee, but worth your consideration is your driving mileage. Most lease agreements charge a fee, anywhere between 10 -20 cents per mile if you drive over the lease term’s 10,000 or 12,000 annual mileage allowance. This is not so much a hidden fee since most people who lease cars don’t plan on driving more than 12,000 miles a year. Even if you do go over your annual mileage, you can still negotiate a trade-in with your dealer.  Lastly, beware of the lease disposition fee. This is one that has gotten me a couple of times to the tune of $300 to $400, both on a Hyundai and a Subaru Legacy. Ask your dealer and refuse to pay this. Tell them it’s a deal breaker. Car leases are as negotiable as any other business or finance transaction. The hidden fees are no more or less risky.
  3. Insurance and License Fees of Leasing Cars: Whether you buy or lease a car, you will pay the same for insurance and license costs for your state. The half-truth part of this is that because you are always driving a new car, your costs are likely to be higher. Again, this is more or less a cost comparison of driving new cars versus old cars. Logically, it is more expensive to insure an expensive, new car than it is a cheaper, older one. The costs of state taxes and registration varies from state-to-state and again, the more expensive the car, the more expensive it costs to register each year.
  4. Once you Lease you are Stuck in the Car: This is perhaps the one, half-truth which is closest to an outright myth. Remember, rule number one about new cars: They depreciate like crazy. So, if you just bought a brand new Corvette for $60,000 and one month later decided you don’t like the car or cannot afford it, you’re in trouble. The car is now only worth about $50,000, instead of the $60,000 loan cost. What do you do? And, it would be just as bad or even worse if you paid $60,000 cash for the car. You’ve given the dealer all of your money and now can only get $50,000 back for it. It would be far better to have leased the Corvette for a $595.00 monthly payment. After one month, you’re out the $600.00 rather than $10,000 while you consider other options.  Fortunately, there are plenty of options for getting out of a car lease.  Or, if you would like to go directly to a company that can help:  LeaseTrader or SwapaLease. By following these links, you will see that there are many services which find and match buyers and sellers of cars that they no longer want.  Why lease a car? Reduction of financial risk is just one of the many other reasons.

The bottom line in understanding the objections of your typical leasing skeptic is to realize that they are not speaking from an informed opinion. Even a leasing enthusiast doesn’t need to have an expert’s understanding of the Leasing Terms and car lease jargon to see why it makes sound financial and reliability sense to lease cars. It is not completely necessary to

Three Good Reasons to Not Lease a Car

Despite the many naysayers and skeptics with their own agendas, there are three situations when why you would not want to lease a car.

  • Annual Driving Mileage: Most Lease agreements give you an allowance of 10,000 to 12,000 miles a year. It is possible to extend these to 15,000 miles for a slightly higher payment. However, if you are certain you will go well over 12,000 miles, it is probably not in your best interest to lease a car.
  • Bad or No Credit: Favorable leasing terms is heavily dependent on credit rating. Part of the formula for a low car payment is securing a low interest rate or money factor from the lender. It may still be possible to lease a car with less than stellar credit, but if it makes the payment substantially higher, it negates the primary benefit of leasing a car.
  • You Love Working On or Modifying Cars: While not all of us have the time or talent to work on automobiles, some of us are not only very good at it, but actually enjoy it. Mechanically modifying a leased car in any way could violate the terms of your lease and result in an expensive damage fee. I am never bothered by talented mechanics for telling me not to lease cars. They have completely different talents and desires and therefore have a completely different mindset. It would not attempt to tell them why lease a car anymore than I would expect them to explain to me how to do a valve cover job on a 1967 Plymouth Valiant.

Why Lease a Car?

The Real Answer to the Unreal Question

Besides the aforementioned, half-truth wisdom against car leasing, there are a handful of other dissenting opinions and they range from mildly illogical to completely insane. Believe it or not, I have had some people advise me that I can never build any equity by leasing cars. Kaching! Folks, This is why we lease cars. Cars depreciate. we cannot build equity by investing in cars at all, unless, we plan to make collector’s items of them, fix-them-up and resell them as valuable antiques. One other warning against leasing I’ve heard is that I will always have a payment. That is definitely true, but what is the alternative? Like cars, human beings do not last forever. Our bodies will eventually give out. We lease cars, much like we are leasing our bodes here on earth. As long as we are gracing God’s green earth and able to afford it, we should be glad that we can still make the payments on a new, safe and reliable car to get us where we need and want to go. The reality is that as long as I am healthy, able and willing to drive a car, I will always need a reliable, healthy car that is ready and able to take me where I want to go. The innovative features, safety, reliability and technology behind new automobile makers continues to progress every 3-4 years a new model is introduced. If you truly want to stay ahead and enjoy driving the latest cars, leasing allows you to keep up every 3-4 years without investing all of your hard earned cash in such a depreciating asset. Besides that, new cars are a neccessity for some of us who need reliable and safe transportation and have neither the time, nor the ability to fix our own cars. Safety and security is one of the greatest arguments of all for leasing cars. When my wife or daughter are on the road in the dark nigh, would I rather them be in a brand new car with warranty or with an old, used car prone to any number of problems that could render it un drive-able at any time? Once we’ve made up our minds to drive safe and to drive new; have a good credit rating and drive less than 12,000 miles a year, there is no longer a reason to even ask, why lease a car.

 Posted by at 2:39 pm

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