Deciding to lease or buy your next vehicle is an important financial consideration with short-term and long-term implications. Buying a car outright provides a sense of pride and freedom. However, leasing offers the opportunity to drive a new vehicle every few years without the commitment—and expense—of ownership.
Both options have advantages and disadvantages worth carefully evaluating before signing on the bottom line, said Jake Heintz, sales manager for Krebs Chrysler Jeep Dodge Ram in Gibsonia. “We provide both options and talk through them with our customers. We’re not salespeople. We’re consultants here to help them make the decision that’s best for them, not us.”
Budget-conscious consumers may prefer leasing their next vehicle if lower monthly payments are a top priority. All lease companies set a residual value—what they project the vehicle to be worth at the end of the lease—and then use a formula to determine the monthly payment. “As a general rule, it’s between $150 and $200 cheaper per month to lease than buy,” said Heintz.
Down payments aren’t required with vehicle leases, another benefit to choosing this route. Heintz said consumers may see prices quoted online or in sales ads with cash down for buying, but it’s rare to need a down payment for a leased vehicle. Instead, leased vehicles have other upfront costs such as the first month’s payment and a security deposit, an acquisition fee, and other applicable costs. Heintz said the lease agreement spells out all associated costs. He advises reading it carefully before signing on the dotted line.
Another perk of leasing a vehicle is getting to drive a newer model with all the bells and whistles every couple of years. “If you’re buying a new car regularly and want to trade it in after three or four years because you have that itch for a new car, then a lease is a better option,” said Heintz. “It saves you money in the long run and gets you a newer car.”
One of the more popular benefits of leasing a vehicle is the maintenance provisions in most lease agreements. Most leases cover routine maintenance needs like oil changes. “Anything mechanical is covered,” said Heintz. Wear-and-tear items like brakes are not included, so lessees would be responsible for those costs should they need those kinds of repairs before their lease expires.
There are some downsides to leasing versus buying a new vehicle. Mileage limits are typically imposed on a leased vehicle, with steep penalties for exceeding them. “If you go over the mileage limit, it’s typically 25 cents per mile when you return it,” Heintz said. “You can get around that with an option to buy at the end of your lease if you decide you want to keep the vehicle.”
The standard leasing agreement includes 10,000 miles per year. Some leasing companies offer higher-mileage leases of 12,000 to 15,000 miles per year or more. However, they come with higher monthly payments.
Another disadvantage to leasing is being responsible for any damage that happens to the leased vehicle while it’s in your care. When your lease ends, consumers have the option of calling the leasing company directly or returning the vehicle to the dealership where they got it. In both scenarios, an inspector from the leasing company evaluates the vehicle for any damage or wear and tear. Lessees may be charged for repairs if any problems are identified.
In Pennsylvania, insurance coverage requirements for a leased vehicle typically include the state-mandated minimum liability coverage, as well as adding the leasing company as an additional insurer, said Jason West, owner and agent at The West Insurance Agency in Butler. “Some leasing companies require higher-than-state minimum limits, so the purchaser should check the lease terms and have their agent quote the increase, so there are no surprises,” said West. “The most common higher bodily injury limit I see is $100,000 per person and $300,000 per accident.”
Bodily injury liability minimum coverage is $15,000 per person and $30,000 per accident for injuries to multiple people. Property damage liability and first-party medical benefit minimums are $5,000.
In addition to the minimum required, West said he recommends leased vehicles have what is known as gap coverage. “If you wreck the vehicle and the repairs are more than the vehicle is worth, the insurance company totals the vehicle and pays the value of the vehicle at the time of loss,” he said. “The gap coverage would cover the gap between what is owed to the leasing company and the claim check from the insurer.”
There’s no difference in rates for leasing versus buying, said West. However, he recommends reporting any damage when it happens instead of waiting until the lease is up and then reporting all damage simultaneously. Larger dings and scratches could result in costs at the time of turn in. “Normal wear and tear usually won’t hurt you too much,” he said. “It all depends on the person inspecting it when you turn it in, and whether they’re going to hit you really hard for it.”
West recommends handling major claims immediately. “If you have some major visible damage, get it fixed right away. Notify the insurance company, not the leasing company, and we can take care of it,” he advised.
Things not worth fixing are tiny dents and scratches, West said. Deep scratches, cracked bumpers and broken headlights should all be reported for repair. “Knowing approximately what the lease company would consider normal wear and tear versus damage that will need to be repaired is helpful,” West said. “You should always discuss the impact to your premiums for turning in claims.”
If in doubt, consult with your insurance agent about whether damage to your leased vehicle might be problematic if not repaired before the lease ends.
There are many factors when making the decision to buy or lease a car, so doing your research and asking the right questions will help you decide what’s best for you.
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