| Should
I lease?
Although you may be attracted to the many benefits of new car leasing,
you should consider the questions below before making a decision. If you
answer "yes" to any of the questions, it's a good indicator
that leasing may not be right for you. To do otherwise could cause you
a great deal of unhappiness and unnecessary financial pain.
Do you think
you'll want to end your lease early?
Car lease contracts are purposely written to discourage, even prevent,
early termination. To do so usually means you'll pay termination charges
and all remaining payments. Therefore, if you lease, you should have a
stable lifestyle and a good job situation to minimize the possibility
of needing to terminate early. Wanting or needing to end a lease early
is the most common problem people have with leasing.
Do you typically
drive your cars more than 15,000 miles a year?
New-car lease contracts limit the number of miles you can drive to 10,000-15,000
miles per year. If you exceed your limit, you're slapped with "excess
mileage" charges at the end of the lease. Sometimes, additional miles
— if you know you'll be driving more — can be "bought"
up front at the time you sign your lease, at a lower per-mile cost.
Do you think
you'll want to customize your car, make modifications, or repaint?
A leased car doesn't belong to you, it belongs to the leasing company.
Therefore, you cannot make modifications and install custom equipment
that alters the car. If you do, you'll likely be charged for the cost
of repairs to undo what you've done.
Do you mistreat
your cars or fail to keep them in good condition?
Leasing companies require that you return their car at the end of the
lease with no more than "normal" wear-and-tear. Anything more
and you'll pay for the damages. You are responsible for insurance, upkeep,
and maintenance just as with a purchased car. Some people mistakenly believe
the leasing company is responsible.
Do you prefer
"fad" cars or cars that frequently change style?
These types of cars usually lose resale value quickly, which means their
lease "residual" value is lower. Low residual value translates
into higher monthly lease payments. This kind of car could easily have
a higher monthly lease payment than a more expensive car with a better
resale history.
Are you emotionally
attached to the idea of owning your vehicle?
When you lease a new car, you have no ownership during your lease, unless
you choose to buy at lease-end — which about a third of all leasers
do. Leasing is not all that different than buying with a loan, in which
case the bank holds the title and you don't own your car until the loan
is paid off. It's just that, when buying, you build up equity because
of your higher monthly payments and, when leasing you don't.
Do you have a flawed
credit rating?
Because leases typically require a smaller down payment and lower monthly
payments, you generally must have a better credit rating than would be
required for a loan because of the higher risk to the lease provider.
If you have a history of making credit payments promptly and don't have
an excessive debt load, you're going to be fine. Otherwise, you may have
to pay a higher interest rate to lease or, worse, be refused. (You can
check your FICO credit "score" from all three credit reporting
agencies used by lease companies at MyFICO.com
)
Do you like
paying off your loans and driving your cars until the wheels fall off?
One of the benefits of leasing is that you can drive a new car every two,
three, or four years. However, you'll always be making payments. To many
people, this is an acceptable tradeoff considering the benefit of always
having a new car that is always under warranty. If you prefer to make
higher monthly payments but then have a period in which you are payment-free,
then buying is a better option for you than leasing
How's your
health?
If you have medical problems that may prevent you from completing a lease,
it's better not to lease. Leasing is not like renting. You can't simply
return a leased car to the lease company if health problems, or even death,
occurs. Leases are financial obligations, similar to loans and mortgages.
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