When people are in need of a car, the focus is on the car itself to such a degree that it can seem as if the purchase is happening in a vacuum. After all, there’s always a dealer somewhere who will show us how we can afford something we’re not really sure we can. Often, that magical way to affordability is through a car lease. It can be used either to enable us to qualify (as opposed to truly afford) a car we otherwise can’t, or to trade up to a more expensive one than we could if we were to buy it outright.
A car purchase is never a completely stand alone transaction. Because of the cost of cars today, buying a new one represents an important component of your overall financial well being. Buying the wrong vehicle, or buying it the wrong way—such as with a lease—can compromise our finances for many years to come.
What’s so bad about car leases?
A car lease is always temporary fix
Car leases are largely for people who want new cars but can’t afford them. Down payments are typically lower than on purchases and monthly payments can be considerably lower.
The problem with these benefits is that long term they do nothing to improve your financial situation. They’ll put you in a car—a new one at that—but you won’t build equity in it, nor will you be working toward the day when you’ll own it outright.
Ultimately, the lease will always need to be replaced.
You’re locked into perpetual monthly payments
Since you’ll have nothing to trade in when the lease expires, the most likely course of action will be to enter into another new lease. Dealers will make this process even easier by waiving certain exit fees. But don’t be to sure they’re actually waiving them—there’s an even better chance they’ll roll them on to your next deal and you’ll never be the wiser!
A new lease will mean another term of payments—24 months, 36, 42 what ever—but you’ll always have a payment. And that works for the dealers; if you never experience not having a car payment, you’ll never know how good it feels and why you need to work so hard to get there.
Car leases create a future obligations
Part of the reason car leases are cheaper on the front end is because they’re more expensive on the back. The car company isn’t offering a less expensive program for leases, its just shifting the burden from one end to another.
If you want to buy out the lease at the end of the term, you’ll have to buy the car all over again but at a price much higher than what you’d pay for a comparable vehicle on the open market. After all, the dealer has a captive buyer on this!
Even if you want to get out of the lease early, there are penalties in place that you’ll have to pay in order to do so. And at any point you want to get out, the dealer can always assess additional charges for the vehicle condition—real or otherwise.
A car lease forces you to maintain the required maintenance schedule
It’s often said that when money’s tight, the first thing to go is maintenance. Who hasn’t been in a difficult financial position where maintenance had to be delayed, either on a car or some other possession? I’m not recommending this course, only pointing out that in the real world, this is a way people often stretch budgets.
With a leased car however, you may not have that option. Leases contain provisions requiring you to maintain the vehicle to manufacturer specifications otherwise you could be in violation of the contract and subject to penalties. If you’re playing it safe, by having service through the dealer, you’re probably paying the highest maintenance costs possible!
And here’s another drawback to having a leased vehicle—you can’t put cheaper, used parts in a new car, especially one you don’t own!
Leases aren’t just about a monthly payment; there’s a whole chain of other costs that go with it.
You’re bound by a contract for years at a time
None of us ever like to feel trapped. But trapped is what contracts to do us, and whether the car dealer calls it a “lease agreement”, “lease option”, or what ever soft title they choose, you have entered into a legally binding document, better known as a “contract”.
It doesn’t sound quite so benign when you call it that, does it? But that isn’t the worst of it…
Lease contracts are drawn up by the dealer’s lawyers (plural!), not by you and your lawyer. They’re drawn up to protect the dealer and his interests, not yours. A purchase is a one time event; you sign the papers, take your car and go on with your life. A lease is an ongoing process that legally binds you (not the dealer) to certain required performances.
Nope…it’s not benign at all.
A car lease leaves you with nothing when it’s over
People who enter car leases typically go in with nothing, and come out with basically the same thing—that is if you ignore the various exit fees that aren’t so easy to determine during the course of the lease.
Under the best of circumstances, you’re no worse off than when you started (not likely), but you still have no money or trade-in equity as a result of having the car for several years. No matter how leases are packaged, no matter how well priced, this fact is inescapable and by itself it’s sufficient reason to avoid the whole mess.
Our financial goals should be based, at a minimum, on a plan of always moving forward—if only a little bit at a time. Car leases don’t enable us to do that.
A car lease creates an appetite for new cars
This can be the biggest torpedo of all, and most of us never think about it. When you lease a car, it’s a new car, not used. This means you’re always driving something that’s new, and that’s a form of addiction.
Let’s be honest, few trappings in life massage the ego quite like a new car, and if you’re used to driving them—if new is the norm in your life—you probably won’t consider buying something used. Even though it would make much greater sense from a financial standpoint.
With all that going against car leases, why not plan to buy a good, used car instead? It may not be quite the emotional buzz of having a new one, but your finances will thank you for it. And you might even sleep better at night!
Have you ever leased a car before? What were your thoughts about it?