I’m considering leasing a car, but I’m concerned that lease agreements may have major penalties that are hidden in legalese. What catches are often in lease contracts? Am I safer just buying a car outright?
The only real catch most of the time is the mileage limit. I, for instance, couldn’t lease a car because I do too many miles each year. I had an uncle one that had a lease prematurely hit its mileage limit & he left it sitting in the driveway for months rather than pay the overage.
In general, leasing makes sense only for people who plan to get a new car on a regular 2-3 year cycle.
In general, you never lease a cheap car - or really, cars that have trouble with resale value. The lease amounts will be loosely based on how much of a car’s value you will be using up. The cheaper the car becomes the larger the percentage you pay on the car’s value.
What about cosmetic damage through normal use? Like what happens if I’m parked in a lot, and someone careless lets a shopping cart hit the car? What about the pattern the wipers leave on the windshield? What about normal wear on tires or consumption of brake pads?
In my experience, a major factor is the cost to put the car back in condition at the end of the lease. This is all up to interpretation by the leasing company at the end. They allow normal wear and tear but things like windshield divots, door dings, excess tire wear, upholstery wear, and so on, is not considered normal wear and you can be charged for it. Plus you are responsible for all warranty services and any repairs beyond warranty.
At work we turned in ten leased cars and was charged the equivalent of a full years lease for such items. I went to court on it and lost. A lease should be used if you deduct the cost of vehicles for business. Other than that it is simply a way for people to get a lower monthly payment but not necessarily the lowest overall cost.
I only leased a car once. It went back with all of those kinds of things - minor dings and normal wear items worn. There was even a small hole in the rear seat. On top of that, the car had actually been rear ended about half way through, and repaired by our insurance company. I wasn’t charged anything. It will, as Bing said, depend on the leasing company that accepts the return of the vehicle. There’s no way to even specify most of the stuff in legalese. Whether something counts as “normal” wear and tear is actually going to come down the the judgment of the person who inspects it.
"Whether something counts as “normal” wear and tear is actually going to come down the the judgment of the person who inspects it. "
Exactly!
If the person doing the inspection got up on the wrong side of the bed, or if he had a fight with his wife that morning, he may nick you for things that would typically pass as “normal wear and tear”. This highly subjective area is one of the many reasons why I would not lease a car.
If I had a business, and I was able to deduct all of the lease-related costs, it might be an entirely different matter, however. But, for an individual who can’t deduct those lease expenses from his taxesl , I don’t see any advantage to leasing, and I see a whole lot of disadvantages.
Normally imho they go wrong in signing the lease agreement. My philosophy is buy a car, pay for it in 5 years and drive it for 10 years. Certainly there are situations where a lease makes sense, but it would not be offered if there was not profit for them and a loss for you.
In my experience, leasing is used mostly by people who want to appear to be living the good life, even though their income does not warrant it.
I have a friend who has had a succession of low-paying jobs throughout his life, as a result of a lack of higher education or specialized training. However, you can always count on him to drive a Lincoln or another luxury marque, which he obtained through leasing. He constantly runs a huge balance on credit cards in order to buy expensive clothing, and winds up paying lots of interest on those credit card balances. He is constantly living beyond his means, but no amount of “counseling” by his friends will dissuade him from trying to look affluent when he is actually living paycheck to paycheck. Apparently, in his mind, leasing “works” for him, even though it actually helps to make him poorer.
Another friend, who had a higher-paying job than I had, and whose retirement benefits are superior to mine, is living from one pension check to the next–in a small rented apartment in a sketchy neighborhood. But, he leases a new Cadillac every few years, and he uses the Caddy to drive to Atlantic City at least a couple of times per month–where he proceeds to put himself further behind the proverbial eight ball when he loses most of his money at the gaming tables. But–he has to drive that leased Caddy!
I, by comparison, live a non-ostentacious lifestyle, save as much money as possible, always pay good old American CASH for my cars, then maintain them meticulously and drive them for about 10 years or so in order to get the maximum value from my purchase. And, I have paid off the mortgage–early–on my own 2,200 sq ft home on 2/3 of an acre in a relatively affluent area–even though I am not affluent.
If I had deep-seated insecurities that mandated a new luxury car every couple of years, I suppose that I might succumb to leasing. Or, if I was more interested in impressing others than I was in maintaining financial security, I might buy into the idea of leasing. However, my current strategy seems to be working much better than that of my friends who seem to be addicted to leasing luxury cars while constantly living on the edge of financial ruin.
Go figure!
Leasing is generally more expensive than buying over the long term, unless it’s for a business. If you exceed the mileage limit, it will be far more expensive, of course.
As for your question, the main catch is the wear and tear at the end. I have a friend who leases BMWs. At the end of the last two leases, he’s had to pay hundreds of dollars to get the cars back into shape.
I don’t think leases are necessarily bad. Pay attention to the mileage allowed over the term of the lease. Many leases allow 12,000 miles per year. If you go over that allowed mileage you pay something per mile, like $.20 or .30. So, know the allowed mileage number and the cost per mile of excess miles.
The other key number is the “residual” value of the car at the end of the lease. This is the amount you would pay for the car if you wanted to buy it. If the car is damaged and not worth the residual value you would have to pay the difference. This means you should take care of your leased car. You will be required to have full collision insurance and to fix any dings and dents in the car before you turn over the car at the end of the lease.
The lease does not cover regular maintenance, replacing tires, or replacing wear items like brake pads. In addition to the monthly lease you pay for gas, repairs, wear and tear, maintenance, and insurance. You don’t “own” the car and cannot consider it an asset. If you are in a business you might be able to “write off” some of the lease expenses.
Generally lease payments are lower per month than a regular purchase using a bank loan to finance the deal. The reason is the leasing company figures in the residual value up front and bases the monthly payment on the difference between the residual value and the cost to buy the car from the manufacturer and off course they figure in a “profit” on the transaction.
The leaser gets more car for the same monthly payment, might have to put less money “down” to get into a car, and has lower monthly payments. However you never own anything and at the end of the lease period you have to decide to buy the car, or turn it in and figure out what to do next for a car.
The biggest problems are people who sign a lease and in a few months have financial problems, marriages break up, lose jobs, etc. In these cases the penalties involved in ending the lease early are very high and this is when things get very dicey and can mean a lot of money lost.
I wish the auto makers and banks would rename leasing to what it really is: “long term rental”.
I seriously doubt they’d get that much business if they called it that, though.
If you only want a car for five years, a lot of money can be saved with a used car. Save on insurance too. I may never buy another new car and I don’t see the reason to lease one now that the fad is ended.
Years ago when companies or individuals who use to work for themselves Leasing a vehicle had some nice tax benefits. Most of those tax benefits have gone away.
The ONLY benefit I ever see with leasing is you can get into a more expensive vehicle with lower payments.
Financially Leasing is the WORST thing you can do. I’d NEVER EVER lease.
Leases are generally good for corporate buyers, buut that’s because they become an operating expense rather that a depreciable long term asset.
For an individiual, they’re a lower monthly payment (or more car for an equal monthly payment) BUT…at the end of the lease term the company gets the car back and you have ABSOLUTELY NOTHING for all those thousands of dollars you spent. Nothing. Nada, Zip. The money has completely disappeared into someone elses pockets instead off becoming an asset for you.
And should you get a lemon you’re stuck with it. Should you discover the seats are killing your back, you’re screwed. Or should you have a minor fender bender from bumping your mailbox (or garage door edge) you CAN’T just say “aw, it ain’y worth fixin’”. You MUST fix it, or pay the price in the end.
In short, if you lease, the car is NOT yours. You need to treat it as if it were your brother-in-laws (the one that hates you) and you were paying him to let you use it.
You need to KNOW how much they charge per mile for every mile over the agreed limit…You also need to know how they define “normal wear & tear” and the penalties if they determine the wear is “abnormal”…
The lessors, THEM, could be left holding the bag on lease deals and to avoid that and ensure they make a profit legal staffs have written up contracts that anticipate every possible pratfall for them and morphs them into rainbows for them and penalties for lessees, YOU. It’s kinda like pre-filing a divorce the day before the wedding and giving your spouse everything they want and dating it 24 months in the future.