Who Should NOT Lease & Why
Leasing is one of the most misunderstood transactions in the automotive industry. Dealers know this and take full advantage of the consumer’s lack of understanding. A recent survey of State Attorney General’s Consumer Affairs Divisions revealed that over half of all complaints about car dealers related to leasing and most of those pertained to “flipping” or the practice of talking a customer out of buying their car and leasing it instead.
Because of all the dissatisfaction we will start with discussing why you should not lease and progress from there!
Anyone who drives more than 1,000 miles per month: Leases restrict the number of miles you can drive per year without paying a per mile penalty. Typical leases allow 12,000 miles per year. Many allow up to 15,000 but some only allow 10,000 miles per year. This is called the Base Mileage Allowance. Anything above the Base Mileage Allowance is referred to as Excess Mileage and the per mile price is listed in your lease.
Anyone who transfers jobs and may change states: Most leasing companies will not allow you to move out of state with their car (remember, you don’t own it). Since you cannot take the car with you, the leasing company forces you into early termination which is very expensive. See Early Termination and Transferring a Lease.
Anyone who might change jobs: Changing jobs entails a lot of risk. Your salary and ability to afford a lease might change. Your location and state of residency may change. Either could lead to force you into early termination which is very expensive. See Early Termination and Transferring a Lease.
Anyone my might get fired or laid off: This is very similar to a voluntary job change except your risk of falling behind on your bills is even greater.
Anyone with kids: Leases have very restrictive Wear & Tear clauses. Any damage to the inside or outside of the vehicle will trigger the Excess Wear & Tear charges. More and more leasing companies view Excess Wear & Tear as a profit center. Their goal is to never return a Security Deposit including yours!
Anyone who doesn’t have a garage to store the vehicle in: This relates to the Excess Wear & Tear charges. Any scratches or dents must be repair prior to turning in the vehicle. On your car, you could ignore them. On a leased car you pay for all of them.
Anyone who has to alter or modify a vehicle: If you need an external antenna, dash mounted equipment, roof racks or any other change that leaves evidence at lease end will cost you money. If you need any modifications you must have the dealer perform them before signing the lease.
Anyone who has to park along the street, in a lot or in a parking garage: Are you willing to take a 3 year bet that no one will dent a door or scratch a fender? With a lease you do not own the car and must repair everything prior to turning it in.
Anyone who plans to pay off a car and drive for free: Leasing means never ending monthly payments and if you are leasing a new vehicle you will be paying for half of it within 3 years anyway!
Anyone who keeps a car for years: You never own a leased car and must give it back no matter how well you cared for it. There is a possibility you could buy it at lease end but most Residual Values are above the market value.
Anyone who lives on bad roads with a risk of tire damage: If you return a leased vehicle with 1 different tire the leasing company will put on a new set and charge you!
Anyone who only drives a few miles per month: With a lease, you pay for the depreciation regardless of how few miles you drive. If it is less than the Mileage Allowance you do not get a refund.
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When Leases are a Good Deal
Leasing isn’t always a bad idea. If your job is stable and you drive a predictable number of miles per year leasing will work; particularly if you choose cars that hold their resale value. Leases may have tax advantages under certain circumstances but they are so varied only your CPA could tell you with any certainty.
Leases are also a good deal for second cars or for someone who wants to drive a car under warranty or wants the latest safety equipment.
As you can see, the list of situations where leasing works is much shorter than the reasons not to lease.
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If leases are so risky, why are 17 million people leasing? The payment is less.
The dealer will explain you are only paying for the portion of the car you use but this is an over simplification. Even with the complex leasing formula, the payment is less which justifies a lease if you are in the narrow set of circumstances listed above.
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Why is it so Easy to get Ripped Off with a Lease?
Leasing in concept is simple but in practice it is very complicated. Dealers cannot even calculate lease payments without specialized software so the average buyer doesn't’t have a chance. All the terminology is different. You don’t have buyers, sellers and loans with interest. Leases have Lessees, Originators, Money Factors, Net Capitalized Costs, Residual Values, Purchase Option Prices and lots and lots of fake fees to enhance the dealers profit margins.
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