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Leasing a car can be extremely tempting. After all, who wouldn’t want to drive a nice, brand new car around town? Not only that, but monthly costs for a lease are often less than the monthly payments would be if you bought a car, so many people are tempted to lease instead of buy.
Of course, like many things that seem too good to be true, there is definitely a catch (or two or three!) when it comes to leasing a car.
The unfortunate truth is that leasing can be extremely cost prohibitive. Essentially, you pay monthly car bills, pay for repairs, pay for gas, and pay several different types of fees, only you won’t ever own the car. You will turn it back in at the end of your lease period and then at that point have to take out another lease, or buy a car. This means that financially you won’t gain an asset. Years can go by and instead of owning a car you’ll still be making payments on something you’ll never own.
Here are some other pitfalls of leasing a car:
When you lease a car, you are limited to the amount of miles you can drive every year. For example, your contact may stipulate that you can only drive 15,000 miles in one year. If you go over your mileage, the dealership will make you pay hefty fees per mile. This means you’ll always have to consider which car to take on a family road trip, or how far it really is drive to pick up your friend from the airport. You don’t have complete and total control over the miles you drive; those mileage limits will always be in the back of your mind.
Just like leasing an apartment, leasing a car requires a deposit. Sometimes you’ll hear advertisements on the radio for 0% down on a lease, but more often than not you’re going to have to bring $1,000 or more to the table to get new keys. For those who don’t have large emergency funds or tight budgets, it can be difficult to come up with this large of a sum. You can always try to negotiate with dealerships,but it’s better to put $1,000 towards a car that you will actually own since it will become an asset, unlike a leased car, which belongs to the dealership.
When you lease a car, the dealership often requires you to carry more expensive insurance than you might be comfortable paying for. For example, if you are used to only paying a small fee for liability insurance, you might be required to pay for comprehensive insurance with a lease, which ends up costing more. Dealerships want to make sure to protect their vehicles that they lease out, so they often want them to have the best form of coverage.
If you want to cover all your bases, you might have to purchase something called gap insurance. This is for the unfortunate situation when you might get into a wreck and total the car you are leasing. If the car after an accident is valued at less than what you owe on it, you are still responsible to the dealership for full payment. Gap insurance can help when, or if, a financial “gap” like that occurs. Of course, this is another expense you have to pay for and another worry to keep in the back of your mind as you go about your day-to-day life driving a leased car.
Really read the fine print when it comes to leasing a car. Dealerships will try to sneak in fees wherever possible. For example, there might be a fee for turning your car in at the end of your lease and there could also be a fee for buying your car out at the end of a lease. There is really no limit to the amount of fees that can be added into your contract, so make sure you take the time to read it very carefully, ask a lot of questions, and negotiate when necessary. Don’t be afraid to have someone come with you to read through all the paperwork.
Once you are locked into a lease, it’s very difficult to get out of it. If you have trouble making your payments, typically dealerships aren’t flexible. In many cases, people who have trouble paying their lease bills can transfer the lease to someone else, but like subletting an apartment, they will still be the responsible person on the lease. You can also buy the car outright and try to sell it, but if you are unable to sell it, that could bring a whole new host of financial issues.
If you spill dark coffee on your white cloth car seats and can’t get it out, the car dealership will likely charge you extra wear and tear fees. These can cost up to thousands of dollars. And, although it seems fair to have to pay for extra damage that occurs while you are driving the car, you aren’t allowed to make upgrades to the vehicle. So, if you want to change out your exhaust or add a custom paint job or tinted windows, you won’t be able to with a lease. You’ll need to keep the car as close to the condition you leased it in as possible to ensure you don’t get charged for excessive damage.
Ultimately, most financial experts agree that buying a car is the wiser financial choice. Although you can likely drive a newer and better car with a lease, there is just too much room for error and too much excessive spending of your money in fees. It’s better to buy a used car that has already depreciated in value, drive it for a few years, and sell it when the repairs become too costly. At least then you will actually have ownership of the vehicle and you have the freedom to drive it wherever or whenever you want. You also have the ability make changes or any upgrades you deem necessary without having to answer to the dealership and having an asset in your name will help you in the long run.
Research the value of your vehicle.