Considering Leasing a Car?

If you’re in the market for a new car, you might be thinking about leasing instead of buying. Leasing can offer several advantages. However, there can be more than meets the eye in some offers. Here are some factors that are good to know.

• Cash upfront.

  While it’s true that monthly payments typically are lower when leasing, you’ll still need cash for a down payment. (That’s unless the dealer waives it, which usually means your monthly payment will be higher.) Other upfront costs, all due at signing, include taxes, registration and tags.

• Bells and whistles cost extra.

  Advertised lease specials are often for the base model — not the one with the latest navigation and safety packages. In these cases, adding on extras will cost more.

• You won’t own an asset.

  Leasing is basically renting a car for a period of time, from two up to five years. Unlike buying a car, you won’t have an asset when your lease ends. You’ll have a decision to make: pay the residual value (the car’s value at the lease’s end) to own the car outright, finance the residual or turn in your leased car for another. Regardless, you’ll again need cash for a down payment and other upfront costs for your next lease. In contrast, buying a car means you’ll have a definitive end to monthly payments. Once your loan is paid off, you can put that money toward savings or paying down debt. Or, you can use your car as a trade-in on another ride or sell it.

• Early termination charges.

  If you get halfway through your lease and decide it’s not for you, you’ll likely be charged for early termination. In some cases, you might be required to continue to pay all regularly scheduled payments.

• Mind your miles.

  Most leases cap mileage, often between 12,000 and 15,000 miles per year for a total of 36,000 to 45,000 miles. Driving over this limit could cost you roughly 10 to 25 cents per mile, depending on the contract. If you drive 30 miles round-trip for your commute, you’re traveling 150 miles over a five-day workweek. Factoring in a two-week vacation, you use 7,500 miles just driving to work each year. So, estimate your likely mileage for work and personal use, including road trips.

Tools & Resources

The benefits of leasing include trying out a new model car every few years, enjoying the latest auto tech and avoiding hefty repair bills associated with owning an older car.

Run the numbers for your particular finances. Free online calculators help you compare the cost of leasing versus owning (see below).

The North Carolina Department of Justice’s website provides pros and cons of owning versus leasing cars (bit.ly/lease-or-buy). There, you’ll also see links to related consumer information, including advice for negotiating car leases and loans.