Many consumers cannot figure out how an expensive luxury car is more affordable to lease than a cheap compact car is to purchase, and the answer is simple. It’s called residual value, and it’s the single most important thing to consider when you lease a car. When you choose to lease, you are paying the depreciation of the vehicle in monthly payments. When the dealer determines your payment, it’s done by calculating how long you want to lease the car and how much it’s projected to be worth at the end of the lease. This is why it’s so imperative to keep your miles within the terms you agree upon when you sign your lease contract as well as keep your car in good condition.
Once the depreciation is calculated, a payment is created. The dealer just wants to know they don’t lose money when they get the car back and turn it around to sell. They want it to have low miles, they want it to be in excellent condition, and they want it to be precisely as they told you to bring it back. That’s why it’s so much less expensive. You can drive a $75,000 car for less than half the price for three years.
The Pros of Leasing vs. Buying
In addition to the affordability factor, there are many reasons leasing is more beneficial than buying. One of the biggest benefits is safety. Your car is always covered under warranty because you don’t drive it long enough or far enough for the warranties to expire prior to your lease end. You never worry about paying for repairs or service, and you always have a car that’s in the best possible condition.
Leasing means you get to choose a new car every few years. It’s beneficial to stick with the same manufacturer to take advantage of loyalty discounts such as no down payment or lower fees. For example, if you lease as Mercedes, stick with another Mercedes lease at the end of your term to ensure you get the most bang for your buck. Driving a new car every two or three years is a big perk only associated with leasing. When you buy, you still owe more than your car is worth when you go to trade it in after two or three years. This means you might roll over excess value into a new car. It sometimes means you can no longer afford a new car since you’re adding so much to it.
When you lease, you get to choose from cars you never thought you could afford. That luxury sedan you’ve always wanted is suddenly well within your budget, which means you’re now getting precisely what you want without spending more than you’re comfortable with.
The Cons of Leasing vs. Buying
When you buy, your car is yours to do with what you please. This means you can drive all you want without worry. When you lease, you must keep the car under the allotted mileage or you pay approximately $.20 per mile over. Depending on how much you drive, that’s a lot of money to pay out-of-pocket at the end of your lease. On that note, it’s not entirely beneficial to put that many miles on a car you own, either. The value drops tremendously when you have a high-mileage vehicle, which means you’re still losing out no matter which option you go with.