Advantages and Disadvantages of Car Leasing

by Neil Kokemuller

Car leasing means that you make monthly payments for the right to use a vehicle rather than purchasing it outright, though some contracts allow you to convert to a purchase after the lease. Relative to buying a car, leasing gives you greater flexibility to change vehicles every few years, but you don't get the chance to build equity.

Car Leasing Advantages

The fact that you don't take on a loan with a lease is a primary reason for its flexibility. Edmunds.com points out that the ability to comfortably transition from one car to another without having to sell or trade it in is a common motive.

Additional benefits

Little to no upfront cash output -- When you a buy a car, it is common to put money down on the purchase to reduce the amount you borrow. With a lease, you not only avoid debt but you typically make little or no down payment to get behind the wheel, according to Consumer Reports.

Better quality and security -- Consumer Reports also notes that leasing usually enables people to drive more expensive and better-quality vehicles than they could afford to buy. Also, because they are late-year models, the warranty protection is greater than when you buy an older model used car.

Car Leasing Disadvantages

The lack of ownership is one psychological drawback of leasing. For some people, the routine of buying a car, driving it, selling or trading, and getting a new one is habitual. It is ingrained during childhood while watching parents do the same. Leasing doesn't offer the same sense of ownership and ability to build equity value.

Tip

  • Because you don't own the car, leasing also doesn't allow for customization like an owned vehicle does.

Additional drawbacks

Higher total costs -- Lower monthly payments might make it seem like leasing is less expensive than buying. However, long-term leases usually end up costing more than purchasing, according to CBS News. After you finish with an owned vehicle, you can sell it and recoup the equity value. Bankrate has a calculator that allows users to compare monthly payments and total costs based on the vehicle price. Assume you resell a $20,000 vehicle for $12,800 just 24 months into a 60-month loan term at 8 percent interest; your total net cost would be $11,234.22. The total 24-month lease cost on the same vehicle would be $11,339.86.

Contract restrictions -- CBS news indicates that leasing contracts often limit your mileage to around 12,000 to 15,000 per year, which precludes people with long commutes or long-distance driving needs. Penalties for early termination are also costly and restrictive, which offsets some of the flexibility to change cars. Add-on costs are also possible to repair damages or wear and tear when you return the vehicle.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.