When your not-so-trusty old car gives up for good and you're staring into the face of a monthly payment that doesn't play well with your finances, what is there to do? New car prices have skyrocketed to an average of over $36,000 which is out of reach for many Americans. As a result, more car shoppers are choosing to buy used or lease. The dilemma with buying a used car is that you're forced to choose between a worry-free, low mileage vehicle with a high price tag or an old beater that carries the risk of breakdowns and costly repairs. Finding something in between can be a challenge.
Leasing a car usually offers lower monthly payments than buying new, but how low are we talking and will you be able to swing it? We'll explain how leasing can get you into a car, give you tips for finding the best lease deals and cover reasons why leasing wouldn't be the best choice.
Why Lease Payments Can Be More Affordable
Car leasing is different than buying and financing a new car because you're not responsible for covering the entire price of the vehicle. When you sign a car lease, you're agreeing to pay the difference between the vehicle price and the residual value at the end of the lease. So instead of paying for the full car purchase with your down payment and monthly loan payments, you're only covering the depreciation over the course of your lease, plus fees.
According to Edmunds, leasing a car will cost you an average of $120 less per month than a traditional car payment. If you're looking for a pickup truck, you'll save an average of $206 per month because trucks retain their value better than cars.
On top of lower monthly payments, you may also be able to avoid a large payment upfront. This is especially important if you find yourself unexpectedly needing a new vehicle without saving up. There are some car lease specials out there that do not require any money down at signing. If a down payment is required, it will only set you back a couple thousand dollars compared to a much higher down payment if you choose to buy (20% of the car price is recommended).
How to Find the Best Lease Deals
When you take out a loan to buy a car, your monthly payment is determined by the car's price. When you lease, the make and model play a bigger role because the residual value will differ based on the vehicle you select. That's why it's especially important to do your research before you lease.
Calculate the True Lease Cost
If you're deciding between several lease options or want to know how much you'll end up paying overall, there's a simple way to compare. Take the monthly payment and multiply it by the total months in the terms of the lease minus one (you'll typically pay the first month at signing). Add this total to the amount you'll be paying upfront to determine how much the lease will set you back overall.
Look for Incentive Lease Deals
Summer is a great time to look for lease specials because automakers want to make room for new and redesigned models coming in. If an automaker has a slower selling model, you'll also find better deals on leases for that model. The benefits of lease incentives include lower monthly payments, no money due at signing or both.
Oftentimes, lease deals are regional, so you want to check under the local deals section of an automaker's website to see what is available near you. An example is Honda's current offers page that lets you put in your zip code to find lease specials in your area. There are many leases that will get you into a car for under $200 per month which is a much easier pill to swallow than the average car loan payment of $515 per month. A word of caution is to always check on the additional fees that come along with the advertised monthly lease payments. Many times the advertised number does not include everything.
What to Consider Before you Lease
While leasing can be a great solution for someone that needs reasonable monthly car payments, it is not for everyone. If you have bad credit, you will likely not be able to find a good deal on a lease. Another route we would recommend is looking for an inexpensive but reliable used car. If you find one that you can pay for in cash, you'll avoid outrageous interest rates while you work on improving your credit.
Another reason not to lease is if you put a lot of miles on your car. Although the advertised monthly payments may be tempting, most leases only allow between 9,000 and 15,000 miles per year. Once you factor in the overage fees, the monthly cost savings will no longer be worth it.
If you have good credit and hitting the mileage limit isn't a concern, leasing will give you a practical alternative to taking out a car loan with a high monthly payment.