Many clients come to me for help in leasing a car. The first question I always ask is, “Why are you interested in leasing?” The answer is almost always, “Because I can get a lower monthly payment.” WRONG ANSWER! If you are leasing simply to get a lower payment, you are asking for trouble. Some dealers even use leasing as a sales tactic to talk someone into a car they can’t afford – often without the customer even realizing that they signed a lease.
Leasing is a lifestyle, not a financial strategy. Leasing can be the right solution for certain people, but it frequently gets others into trouble Most people are not good lease candidates simply due to their annual mileage. The average person in the U.S. drives about 15,000 miles per year, while most leases allow a maximum of 12,000 miles per year (or 36,000 miles total). People also change jobs more frequently these days, which can make your annual mileage unpredictable. You may drive 12,000 miles per year now, but taking a new job across town may increase your mileage to 18,000 miles per year. That’s assuming, of course, that you even know how many miles per year you drive – most people don’t.
The penalty for going over the mileage limit on a lease can be as much as 30 cents per mile. I have seen people owe as much as $8,000 over “overage charges” at the end of their lease. Many car manufacturers offer higher mileages leases, but those can end up costing more than simply purchasing the vehicle outright.
Not all vehicles are good cars to lease. Leases are calculated based on a vehicle’s predicted “residual value”. In other words, how much the vehicle will likely be worth at the end of the lease term. Vehicles that traditionally hold their value well tend to be better to lease. It also depends on the strength of the manufacturer’s leasing program. Some manufacturers will develop strong lease programs in order to increase sales of certain models.
Leasing may be a good option for you IF:
- You consistently drive 12,000 miles a year or less
- You want a vehicle that has a high resale value
- You like to have a new vehicle every few years
- You have a second vehicle to drive, if needed
Leasing is NOT a good option if:
- You drive 15,000 miles or more per year
- You don’t KNOW how many miles per year you drive
- Your living / working situation or lifestyle may change in the next few years
- You don’t have cash in the bank to cover excess mileage charges
- You want a vehicle that does not have a strong lease program
- You don’t have excellent credit
What should you do if you are in a lease now and over your mileage limit? Getting out of a lease may be tricky, but it’s not impossible. You will likely need a chunk of cash to cover any negative equity. You also have the option to refinance or buy out your lease. A few leasing companies even allow you to renegotiate your lease mid-term if you find that you are driving more miles than planned.
Leasing can be a good strategy for certain car buyers, but not many. Determining whether or not you are a good lease candidate is part of the Perfect Car buying process. If you are not sure if leasing is right for you, give me a call to see how I can help you make a smart car buying – or leasing – decision. Or listen to my recent podcast for more great leasing information!