Automotive Leasing Trends
According to an analysis by Polk, leasing a car has accounted for 28.9 percent of all new car purchases by Millennials, those under 35, in 2015. This percentage exceeds the industry wide lease penetration rate of 26.7 percent, and reflects a 46 percent increase in leasing by Millennials over the last five years. By comparison, the share of leasing among all car shoppers has increased 41.7 percent during that period. The younger generation are definitely leasing – with college students facing loan debt – they are looking for the best ride at the lowest monthly payment. Leasing provides, for drivers of all ages, an option to drive a car with little down payment and allows for lower monthly payments than a conventional auto loan. Leasing results in the car buyer driving a newer car, with low maintenance, and less money overall. How much money can be saved leasing vs buying a car? According to Experian Automotive leasing could save nearly $100 per month.
Car Leasing Pros
Some of the advantages of leasing, instead of buying, include lower monthly and down payments, pay sales tax only on the portion you are financing, and drive a newer vehicle with less maintenance costs (as most leases come with a factory warranty to cover most repairs). This option also allows you to drive a new vehicle every 2-3 years when your lease ends. Also, if your lifestyle changes, transferring a lease to someone else is usually pretty easy. There are two websites that will handle the transfer paperwork — as well as help you find someone to take over your lease. One transfer site is called SwapaLease, and the other is LeaseTrader. Another benefit is that there are usually no hassles when your lease ends! simply turn it in and sign on the dotted line.
Car Leasing Cons
You don’t own the car you are making payments on – you are simply renting it. Also, in the lease agreement, a set amount of annual miles is determined (usually 12,000-15,000) — if you go over, you will need to pay for excess mileage. If you have accrued any damages to your leased vehicle, you will need to pay for them at the time you terminate your lease. Another con is if your driving needs change during your lease agreement and need to terminate your lease it could be costly to do so.
Car Buying Pros & Cons
When it comes to buying a vehicle there are pros and cons as well. If you own the car you are free own and to modify it as long as you wish. For example, Jeep owners enjoy upgrading, modifying and changing up the look and features of their vehicle – you can’t do that in a lease! Also, if you own your car for an extended period of time, buying does save you money in the form of a trade in vehicle. If you own the vehicle, there is no cap on the miles you put on it. If your lifestyle changes, you can sell the car whenever you would like without any termination fees. The cons of buying a vehicle include needing more money down to purchase and higher monthly payments. You also have more money tied up in your car — which is constantly depreciating. Based on the Car Depreciation Calculator on Money-Zine.com, a brand new $30,000 car will only be worth about $18,000 after 5 years! There might also be more hassles when it comes to selling your vehicle vs just being able to “turn in ” your leased vehicle. If neither of these options work for you, a 3rd option is to buy a Certified Pre-Owned vehicle (CPO). Using the same Depreciation Calculator, buying a 3 year old version of that same $30,000 car might only cost you about $18,000 and the depreciation rate slows down considerably. After 5 years you could still sell it for about $8,000. Also, the monthly payments and down payments for a used car are going to be similar to a lease.
Is leasing a car right for you? It comes down to lifestyle and preferences. Some people like driving a new car every two to three years or it might make sense if you are in a profession that gets a tax write off? But for most, it comes down to budget. Do your research – there are a ton of auto payment calculators that can help you determine if leasing or buying new or used is the best option for you and what best suits your lifestyle and finances.