Leasing Can Hurt You More Than Auto Loan

Many people decide to lease a vehicle instead of taking out a full auto loan on a care because they think it will save them money. They go to the dealership to discuss their options, and leave there with a lease instead of an auto loan payment. Their payments are less per month, so doesn’t that mean they got a good deal?

No, and for a couple of reasons. Firstly, when you opt for a lease instead of a regular car loan you pay for a car, or a portion of a car, for a period of time, which is usually three years. However, at the end of the three years, you don’t own the car. If you take out an auto loan, it is usually for around five years, and at the end of the five years, you own the car.

This can be good, you end up driving a car for three years under warranty, and you have a lower monthly payment than if you had opted to buy the car. But at the end of three years, you have to put down another down payment for another car loan or lease, and you have no trade in to put towards the new car.

However, another danger of leasing is that you can get more car than you can necessarily afford. Let’s say you can afford a car payment of $450 a month. You can get a good car for that, and at the end of the auto loan you own the car. Or you can lease a really good car, like a Lexus or something like that, which you would not be able to afford if you did an auto loan. The smart thing would be to either lease a lesser car and save yourself the money each month, or just get an auto loan for a less expensive car.

Leases also come with pretty strict rules in regards to how you take care of the car. Most leases allow for either 12,000 or 15,000 miles per year, and if you go over that amount, you are looking at some hefty penalties. You can purchase the car at the end of the lease, but realize that it is now a used car, and you will pay a higher interest rate than if you had just gotten the auto loan in the very beginning. You also have to take good care of the car, because it needs to be in resalable condition. It must be worth what it should be worth, because if it is less than you could end up owing the dealer more money.

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