Simply put, leasing is a way of obtaining a vehicle for a defined period of time.
Why is leasing so popular today?
Cars are getting more expensive. The average person can go into "budget shock" just doing the math before buying a new car. A substantial down payment and high monthly payments make owning a new vehicle difficult.
Reasons to lease:
- A lower monthly payment than what you would pay to service a loan for the same vehicle.
- You pay tax only on the monthly payment, rather than up front on the full price of the vehicle.
- It's easier to drive a new vehicle more often (every 2-3 years).
- There's the peace of mind of knowing your vehicle is under a new car warranty.
- You have options at lease end. You can buy the vehicle, re-lease the vehicle, or use the equity as a trade-in.
- You avoid putting too much of your own money in a vehicle.
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Reasons not to lease:
- Leasing is not for everyone:
- The carrying cost may be higher if you lease your vehicle, even though your cash flow is better.
- If you can afford to, purchasing the vehicle will build equity quicker.
- The fine print. Up front.
- Paying the total price in cash is still the least expensive way to obtain a vehicle.
If you cannot pay cash, then a loan or lease with the shortest term available to you will lower the "carrying cost".
When leasing, you are only paying off the depreciation and not repaying the entire value of the vehicle.