Leasing a car enables you to drive a new vehicle cheaply and often. You sign a contract to make monthly payments and drive the car for 24, 36, or 48 months. On the expiry of the lease, you may return the car or purchase it from the dealership.
Despite its many advantages, car leasing is a no-no. It might not allow you to own the vehicle, and you might have to pay additional costs. This article discusses the top 10 reasons not to lease a car to help you decide if it’s a good option.
- Two reasons not to lease a car are that you are under obligation to return it and cannot resell it to finance a new one
- Leasing a car means you pay to use it but not to own it
- Since you do not own a leased car, you cannot customise or tune it
- Leased cars come with restrictive mileage limits, maintenance costs, early termination fees, and high interest
- In the and, the cost of leasing a car is the same as that of purchasing one through financing
What Is Car Leasing and How Does It Work
Car leasing is a contract that enables you to drive a car by making monthly payments for a given period. The leasing company may require you to make a down payment before taking possession of the car.
If you want to know how leasing a car works, you’ll sign a contract containing monthly payments, a down payment, and several restrictions. A typical car leasing contract spells out details on the following aspects:
- Responsibility for maintaining the car
- Agreed mileage limits
- Responsibility for damage when the lease ends
These limitations are because you’re renting the car and not paying to own it eventually. Despite that, you face many risks on behalf of the dealership. That gives you reasons why you shouldn’t lease a car.
Top 10 Reasons Not to Lease a Car
Think twice before deciding to lease a car. Do you have to get a vehicle through a lease? What options do you have? Wouldn’t it be better to purchase the vehicle outright and own it? The following are some of the reasons why leasing a car is not for you:
1. Restrictive Mileage Limits
A typical car lease contract includes annual mileage limits of 10,000 to 15,000 miles. As you drive the vehicle, you must stay within the agreed mileage limits. If you drive for short distances to and from work, that shouldn’t be a problem.
However, the mileage limits may seem overly restrictive if you commute for long distances or like driving cross-country. To stay within limits, you may be hyper-conscious of the mileage.
Driving beyond the mileage limit may expose you to penalties at the end of the lease. To avoid that, you may decide to stay indoors, take public transport, or avoid driving. That makes having the vehicle not as helpful as you might have wished.
Besides, the mileage limits restrict your freedom to drive anywhere you wish. Would you not want anyone to tell you when, where, and how far to drive? Essentially, you should never entertain such restrictions in the name of driving a new car.
2. Responsibility for Maintenance Costs
You can have many reasons not to lease a car, including having to take responsibility for repairs and maintenance. Why would anyone ask you to repair and maintain a car you don’t own? That should be the reason why you should never consider leasing.
Leased vehicles get damaged due to involvement in accidents and similar unexpected incidents. It gets worse if you have small kids who can damage the interior or spill paint on the surface. The dealership wouldn’t want to understand the cause of the damage.
If the vehicle gets stolen or totaled in an accident, you must pay the rest of the contract. That may mean taking gap insurance beforehand to avoid paying off the vehicle out of pocket. That is scary when you imagine being locked into a three-year contract for a vehicle you no longer use.
3. Early Termination Fees
You may wish to terminate your lease contract early due to unavoidable circumstances. In that case, you must pay early termination fees to get out of the contract. Mainly, the dealership needs you to pay out the balance on the lease amount at go. That means paying for the vehicle when you won’t use it.
For most car dealerships, there is no compromise on payment of the early termination fees. You either pay or default and risk reducing your credit score. It’s different for a car you own. You can sell it at any time if you no longer need it.
4. Negative Impact on Credit Score
One of the requirements for leasing a car is having a good-to-excellent credit score. Similarly, how you make your monthly lease payments impacts your credit score. Having a good credit score is critical. It can help you get credit and make significant investments, such as owning a home.
Missing monthly payments on a car lease can significantly dent your credit score. It is worse for the individuals who lease vehicles because of difficulties in buying one. The financial challenges may escalate and make meeting your financial obligations difficult.
Instead of leasing a new car, you should take a car loan or pick a used, cheaper car. With these options, the impact is minimal, and most dealerships offer support to those in financial difficulties.
5. Obligation to Return the Car
A car lease contract obligates you to return the car at the end of the term or buy it out. When you return the vehicle, you can either enter a lease for a new one or walk away with nothing. The car company may sell it to someone else.
It’s worse if you have developed a liking for the car. Nobody cares about the good times, memories, and emotions you have towards the vehicle when the lease ends. You must return it and find a new one.
Not so for a purchased car. You can keep it with you for as long as you want. You can sell it when you no longer wish to recover your money. In short, your efforts to buy the car eventually pay off.
6. Impossible Reselling the Car to Finance a New One
A leased car belongs to the dealership. The monthly payments are for you to use within the lease term. Whether before or after the expiry of the lease term, you can only return the vehicle. There’s no option for you to resell it.
Therefore, it can be difficult for you to finance the purchase of a better car. Regardless of how long you have made the monthly payments, you must start from scratch if you want to lease or finance a new car.
One of the reasons not to lease a car is the perpetual nature of these arrangements. If you’re not careful, you might never stop renting cars. If you choose this path, you must have a long-term plan to buy a car sometime in the future.
7. Paying a Little More Interest
Most people opt to lease a car due to the smaller monthly payments. However, they end up paying considerably more interest than the purchasing option. Remember, the dealership charges interest on the expected depreciation over the lease period – not the vehicle’s value.
Also, you can’t own the vehicle at the end of the lease. Therefore, the dealership and lender treat you as any other borrower without collateral. Consequently, you have to pay more interest to use the vehicle.
On a car lease, a large portion of the monthly payments goes towards interest on the loan. Given that you have to return the vehicle in the end, this isn’t an investment you want to involve yourself in.
8. Impossibility of Customising the Car
Given that you do not own the car, you have limited customisation options. For example, you can’t recolour or change the vehicle’s tech features. When returning it to the dealership, it should be in the same state you received.
Usually, the lease agreement spells out what you can or cannot change on the vehicle. To some drivers, these restrictions are no big deal. However, others like to change tires and rims, add spoilers, or customise the paint.
9. There’s No Possibility of Car Tuning
If you drive a performance-focused sports car, you may want to tune it to improve its performance. That’s only possible if you own or are paying for the vehicle to own it eventually.
For leased cars, such changes are impossible. If you tune the car engine, you must report it to the dealership. That’s because dealers want their vehicles to be in default settings when the lease expires.
10. It Costs the Same as Purchasing in the End
Finally, one of the reasons not to lease a car is that the total cost is the same as purchasing one. You might know that one of the benefits of leasing a car is a cheaper down payment and monthly payments. Once you consider early termination fees, interest, maintenance costs, and the inability to resell, it is much better to buy a car.
Financing a car may cost 10% more than leasing. By diligently making the payments, you’ll ultimately become the vehicle’s owner. You may drive it yourself or resell it to someone else. Even though you’ll miss out on the short-term benefits of leasing, you’ll eventually make an investment of which you can be proud.
The Bottom Line
Are you looking for reasons not to lease a car? Think of it as an investment. Since you’re paying for an asset that you won’t own, is that wise? Besides, the penalties on a car lease are too many – early termination fees, repairs and maintenance, paying more interest, and excess mileage fees. You can’t customise or tune the car. To make it worse, you pay as much as you would have paid to purchase the vehicle.