Why Buy? The Rise of Auto Leases

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Are Americans falling in love with leasing?

It’s trending that way. After record-low statistics in 2009, the latest report from Experian Automotive found that leases made up 28.4% of all new-vehicle financing in Q4 2013—up 3.6% from the previous year—marking an all-time high since the company started releasing auto financing data eight years ago.

One explanation? On its face, leasing is cheaper than buying. According to Melinda Zabritski, Experian’s senior director of automotive credit, the average monthly payment for a new-car lease was $420—more than $50 less than the average new car loan payment. That’s significant savings, especially for those adhering to tight household budgets.

The increasing popularity of auto leases may also be due to less-stringent credit standards: The average credit score for an auto lessee dropped from 735 in 2012 to 719 in 2013, allowing more car shoppers additional flexibility when choosing the most favorable terms and rates—not to mention the option to drive a brand new car every few years.

RELATED: The Car Ownership Price Creep

Think you can’t afford not to lease? Before making a decision to buy or rent your next car, make sure to consider the big picture. Despite a cheaper monthly payment, a number of factors—exceeding your mileage limit, paying higher insurance premiums or coughing up wear-and-tear fees if you’re hard on your car, for instance—may result in spending more on your lease than if you’d purchased the car.

And here’s another major consideration: You wouldn’t have equity in the vehicle at the end of your lease—which is money you would have been able to funnel into a new down payment for your next vehicle.

  • David T

    That was a really short article, I was just getting really interested when it stopped :)
    I think it would be nice to add in more information about how your paying for the cost of capital within the lease, as well as the leasing companies profit.
    It would have been nice to see a break down of buying vs. leasing a specific car over the course of 3 years or 5 years. Showing the typical mainentance cost of owning vs leasing, as well as the final value of the vehicle from owning the vehicle instead of leasing.
    Actually show the numbers, which will typically reveal that leasing is by far the most expensive way to drive a vehicle.

    Thanks!
    -David

  • outragex

    I have always found that it matters if you intend to keep your car for a long time or not. We generally buy new and avoid the pricey luxury packages. Then we drive our vehicles until they die, literally…over 200k in most cases. We are able to save enough for about 50% of the purchase cost between buys, pay off the S&L loan over two years, or take zero interest loans if the auto maker offers them. Leases don’t work for this plan, though sometimes you can buy your vehicle off lease for a price set by the leasor…it may or may not be a good deal.