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 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
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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?
- 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.
- 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:
- Small business owner
- Large company or organization for it’s employees
- Person who can’t make up his/her mind on what type of car to drive
- Person without a lot of savings
- Employee with a steady income
- Person too busy to take care of a car
- 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?