A car lease is an interesting option if you don’t want to buy a car or if you can’t afford to buy a car. This option supposes only covering monthly payments that include the interest rate and the car’s depreciation for a certain amount of time and taking care of the car’s condition. Even if the situation seems simple, there are still disadvantages you should take into consideration.
One of the car lease disadvantages is the fact that for qualifying for a car lease, most of the times, you need to have a credit score higher than that required for a car loan. In addition, if you need to terminate the agreement earlier because of financial problems, you will discover that the process is quite costly. Considering that the fee involved by early termination is sometimes specified in the contract, you should read it twice before signing it. Even if the car is stolen or totaled you will still have to cover the remaining balance that may not be covered by your car insurance. That’s why, in order to avoid paying an important amount of money out of your pocket, you should consider buying gap insurance.
When you lease a car, you will also be required to insure the car. The amount of insurance required by the dealer is usually higher for leased cars. You should find out which are the minimum amounts necessary in order to know what costs you should expect. The dealer will also impose a certain mileage limit. Most leases specify a mileage of around 15,000 miles per year and if you exceed this limit, you will have to pay an extra fee. The fee per mile can be as high as 25 cents. It may seem cheap, but 5000 extra miles and a fee of $15 will result in 750 extra dollars you will have to pay.
Another car lease disadvantage, some clients have to face, is represented by the hidden surprises you may discover in the lease agreement. That’s why it is always wise to read it twice. One of these surprises is represented by the excessive wear and tear fee. In addition to this, on long term, you will realize that the cost is higher than you would think. But, on the other hand, if you afford making only small monthly payments, this is a great option. After paying all that interest and depreciation you will still face little or no ownership entity. By making the payments you aren’t becoming the car’s owner, and in the end it’s very likely that the market value of the car will be higher than the one taken into consideration in the contract.
Despite these car lease disadvantages, there are still some advantages that some of you may find appealing. For example, many car leases don’t require a down payment (which for many is an issue), you will be able to afford driving a new car, the maintenance fees are less costly (because the car is still covered by its factory warranty) and the taxes are lower, because you aren’t buying the car (you won’t have to pay full sale taxes).
A car lease certainly has advantages and disadvantages, but considering that 20% of new cars are leased it still is an option you can think about. You should only pay attention and make sure you read twice the details specified in the lease agreement: the mileage limit, the lease term, the monthly payment involved, the minimum amount of insurance necessary and any other additional fees that may end up forcing you to increase your budget.
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