Why Lease a Car: Reasons It’s Better than Buying

Have you ever thought that you knew what the right financial decision was, only to be convinced the other way? Recently, a friend of mine told me of her desire to lease a car and she wanted my help. Originally, I was a skeptical, telling her that the best financial decision she could make would be to buy a used car, not lease a new car. While I still stand by my decision, I have come to realize that everyone’s situation is different. It may be easy to convince yourself that you have the best solution to a life situation for someone else, but it is much different to make it a reality.

Why lease a car

Why Should You Lease a Car? When is it Better to Lease than Buy?

As I started listening to my friend about why she wanted to lease a car, instead of buy a used one, I began to get it. I began to understand why it is not that bad of a decision for her. Here were some of her reasons on why she wanted to lease:

  • She will be moving to a big city in 1-2 years and doesn’t want to have to worry about selling her car
  • She currently has a older car that is in need of repairs that isn’t worth paying to have done. While she could afford the repairs, it isn’t worth that much to begin with and there is no knowing how much more she will have to spend tomorrow.
  • She lives alone with one car, so she wants a reliable car
  • Her current car is valuable enough to qualify as a down payment, leaving her to pay for the monthly payment.

As I began to soak in the various factors that go into this situation, I realized that leasing a car makes sense given her situation and priorities. That’s when I began to wonder why people lease a car instead of buying. What is it about leasing a car that is favorable to buying? Here’s why I came up with:

Reasons to Lease instead of Buy

  1. You don’t want the hassle of selling it later – Instead of having to go through the various steps to clean up a car, get it ready to sell, show it to interested parties and go through the paper work, a lease seems to be much easier.
  2. You want a fixed monthly payment – While it is possible to finance a car to get a fixed monthly payment, that also means that you are responsible for the value of the car. If the car’s value drops, you could owe more money than it’s worth. You don’t have this concern with leases. You pay a fixed amount for a fixed length and then you are done with it. No commitment! I am convinced that this is why many companies go the route of leasing. They don’t want to have to buy X number of cars and would much rather just pay a monthly payment. While I’m not an accountant, I imagine that this would offer many financial benefits for accounting purposes too.
  3. You want to build up your credit – 10% of your credit score is determined by the types of credit that you have used. If you are looking to boost your credit score, this is one option.
  4. You want a new car without the cost – While the average cost of driving a lease may be larger per year, for leases that are shorter, it could mean spending less money for driving a new car. Instead of paying $20,000 to drive a new car, you might end up paying $8,000 to drive it for 2-3 years. You may question this, but for someone who doesn’t want a car after that period, it may be the perfect situation.
  5. You hate dealing with repairs – Driving a new car has a priceless benefit of not having that many repairs. Several dealerships will also offer to cover the maintenance costs, meaning that you don’t even have to pay for the oil change.
  6. You don’t want to own two cars at once – I used to think that buying or leasing from a dealership was a huge waste of money. Why would anyone want to do that? Well, when I went through the motions with my friend, I realized how convenient it was. For someone who has one parking space or doesn’t want to have to deal with selling their current car, it is much easier to trade it in at the dealership on the same day that you get to drive your new car home. If you bought a new car before selling your old one (because you need at least one car to get around), you could feel the pressure of having to sell and take an extremely low price. Thus, you went through the hassle without any extra financial benefit.
  7. You don’t like owning the same car for a long time – If you are the type of person that likes to change cars every couple of years, buying a car and then re-selling it might not offer you that much more savings. Why not save yourself a lot of hassle and lease if this is the case?
  8. You Don’t have a lot of savings, but can afford a monthly payment – While it’s never a good idea to finance a car when you can’t afford it, there may be a situation where you don’t have a lot money to buy a car outright or to provide a large enough down payment. While you will need some sort of down payment for a lease, it’s often not that much.
  9. The monthly payment for the same car and same length as a loan is MUCH lower – If you do not want to make payments on this car longer than 2-3 years and you want to keep your payment to a minimum, this is going to be the better option hands down.

As you can tell, there are a lot of different situations that can make leasing a car the right choice for you. Many of these reasons may apply at the same time, making it that much better of a decision. Before you are quick to judge those who lease, you may want to consider the actual reasons why people would want to lease a car.

WHO would Want to Lease a Car

In working with my friend on this fun project, I realized that my stereotype of who would lease a car was being deconstructed. I used to think that it was the wealthy who leases a car because they don’t care about losing money in taking the “lesser” of the two options in the buy vs. lease debate. My friend does okay for herself, but she is not that well off, so it forced me to re-think WHO would lease a car in the same was as I thought through the reasons for leasing. While there is some overlap here, I think this helps paint a clearer picture of all of those who lease cars:

  1. Small business owner
  2. Large company or organization for it’s employees
  3. Person who can’t make up his/her mind on what type of car to drive
  4. Person without a lot of savings
  5. Employee with a steady income
  6. Person too busy to take care of a car
  7. Individual who needs a reliable car

The list could go on and on, but the point is just the same. Almost anyone and everyone could decide that leasing a car is right for them. There are many complex situations that go into this decision and it isn’t as black and white as I used to think. The important thing is to list out key points of your situation to determine which is the best option for you. Otherwise, you may be letting your consumerism get the better of you and have society decide for you.

Readers, have you ever considered leasing a car? What was the motivating factor for you?

 

18 Responses to Why Lease a Car: Reasons It’s Better than Buying

  1. Michelle says:

    These are all very good reasons. Sounds like your friend should lease, especially since she’s moving and doesn’t want to deal with it so soon after.

  2. Dave says:

    When I look buy vs lease, I think about the impact on my net worth over the long term. Look at a new car purchase vs lease over a 5 year period. Buying a car hits my net worth for $8,000 over a 5 year period (purchase cost of $18,000 less the $10,000 my owned car is worth after 5 years). Leasing a new car twice over the same period hits my net worth for $16,000 (2 down payments of $2,000 plus 60 monthly payments of $200). Twice the impact on my net worth. There may be intangibles that weigh toward leasing, but for long term financial success, buying is the way to go.

    • Corey says:

      That’s a great point Dave. I tend to think of it similarly. For this figure, the lease was shorter so the lease cost wasn’t as high, but the yearly cost to use the car was much higher leasing than the alternative. That’s not to say that people don’t have legitimate lifestyle reasons for leasing.

  3. You made some good points. I wouldn’t lease a car, but I guess it is the right move for some people. BTW, I think it’s usually cheaper to repair a car. However, if you really need a reliable vehicle, maybe it’s not worth the trouble.

    • Corey says:

      Yeah, I agree. At some point though, you should stop investing thousands of dollars to repair a car if it’s not worth that much, in my opinion.

  4. John says:

    While your friend certainly has a good reason to lease a car, it’s often not the best option for several reasons:

    1. Leasing can trap you into a cycle of always having a car payment. If you buy, once your loan is paid off, you own the car, meaning you have the title and your only costs are fuel and maintenance. If you take good care of your car, it can last much longer than the terms of your loan, meaning you can possibly have years of driving a car and having no payment on it.

    2. When buying, you can modify your car how you want. You can put in that after-market sound system and get custom rims. You can also eat in the car and get a few stains on the interior as a result. While these things will affect the resale value, you generally don’t have the option to do these things when you lease.

    3. When buying, you can drive wherever you want and as far as you want. Leases generally have mileage limits. If you go over, you usually have to pay extra per-mile. Also, leases often have clauses against driving outside the United States without getting permission, so if you want to take a road trip to Canada or Mexico, you might not be able to do so.

    • Eric J. Nisall - DollarVersity says:

      Your 2nd point is moot. When you lease a car, you can make any modifications you want. You can put in a new head unit, tint the windows, change the rims, etc. The only thing is that you would be responsible for either putting it back to factory standards or leaving the options and losing them upon trade-in.

      Also, you can eat and smoke in a leased car without much worry as there is generally an allowance for $1500 (at least with Honda) of general repairs, including upholstery damage.

  5. Corey, this is pretty refreshing to read. I think most people would generally frown upon leasing, but there are plenty of good points. Like most things, I think it definitely depends on the situation. And clearly this situation better tailored for leasing. Not everything is black and white, and considerations have to be made. There has more times than not when I’ve gone to trade in my car for less than $1K and asked why I didn’t bother to lease in the first place.

    • Corey says:

      Thanks MyMoneyDesign. Yes, nothing is clear cut. There are pros and cons to most financial decisions we make and very few of these decisions come down to just the finances.

  6. I definitely lease. My reasons are my own and aren’t affected by what anyone else says or thinks. For me, I like knowing that the odds are better of my not having to worry about getting shafted on a trade-in or when I go to sell. I also don’t like to have to think about repairs or regular maintenance–it’s nice that much of it is covered by my lease. Also, driving an old POS that is held together by duct tape or bungee cords isn’t my idea of a “reliable”. Plus, I don’t really put many miles on a car so for me, the mileage limits aren’t an issue.

    What’s interesting is that so many people will say that renting a house is perfectly fine but a car is far from it. If you ask me, in both situations, you will always have a payment, and walk away from each one with nothing to show for it.

    • Corey says:

      For someone who hates to bring his car to the shop and dread how much it is going to cost me to repair it, I understand this logic. To a certain degree, it is nice to know you only have a fixed cost (more or less). Then again, it sure is nice not having a monthly payment.

    • My cars both have 0ver 250,000 miles on them and are definitely reliable. We actually putting 2000 miles on one of them in a few weeks. They get great mileage and are the premium models for their year. Definitely not an “old POS”.

      But I agree, leases can be a decent option for certain needs. If you hate car repairs, need a new car and don’t mind treating it like a bill, then it should work out nicely.

  7. I’ve got to agree that I think leasing is actually a better option than buying a car since once you buy a car it’s value has already decreased significantly, and sometimes the price of car payments is the same as lease payments. My parents used to think cars were kind of like an investment like their house but they aren’t really, though they are sometimes impossible to live without.

  8. I can’t ever see myself leasing unless it’s for a business need. Even then, I’ll buy and take the depreciation, thank you very much :)

    If you don’t care mich about dumping money into something that has NO chance of returning any value, then go for it. It’s like renting a car long term. Your net worth will suffer in the long run, but it may be worth it if you can’t handle the “stress’ of owning a car.

  9. Michelle says:

    I’ve always heard that leasing isn’t a bad deal as long as you keep the miles down. I don’t think we’ve ever driven less than the max, though. We live in the burbs, so everything’s a bit of a drive!

  10. As Michelle said, mileage is an important factor. If you stay below the amount allowed by the dealer, leasing is often the way to go. Of course, if you exceed a certain mileage threshold, the depreciation value forces you to pay much more than you’d like.

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