I believe leasing a car is one of the worst financial mistakes I have ever made. Because of that, I’m here to give you the top 10 reasons not to lease a car so that you can hopefully make a better decision for yourself!
Leasing a car can seem super attractive. On paper, it seems like it’s a great deal. You get a shiny new car for less than what you would pay if your bought or financed it! Who doesn’t want that?
But I’m here to tell you that leasing is not all it is cracked up to be! If you care at all about your budget or have financial goals you want to reach or want to be mindful about spending money, then leasing is NOT the way to go!
So, keep reading to find out why you should never lease a car! Here are the top 10 reasons not to lease a car!
How Does Leasing a Car Work?
Leasing a car is just another form of financing a car. The leasing company actually buys the car from the dealership and then you essentially “rent” the car from the leasing company.
The process is almost identical to buying a car, but often you are able to lease for lower costs upfront and a lower monthly payment.
However, you only lease a car for a specific period of time (usually 3-6 years). And at the end of your lease, you either turn the car back into the dealership, or you can decide to buy it out.
Now that you know what leasing is, let’s get into why it’s not usually a great idea!
10 Reasons Not to Lease a Car
Reason #1: You are Spending A LOT of Money on Something you Don’t Own
When you lease a car you basically are paying a large sum every month just to drive a car. You are taking on the financial and physical responsibility of the car, but the car company still owns it.
It’s like you are renting a car from Hertz or Budget, but for 3-6 years instead of 3-6 days!
And the payments never end. Unless you decide to buy out your car at the end of your lease. But in that case, you will have spent way more on the car than if you had just bought it, to begin with!
I believe the sticker price of the car I leased was around $24k. I pay $332 every month for 39 months. At the end of my lease, I will have paid just under $13k (that’s a lot to just rent a car)!
My lease says to buy out my lease it would cost me $15k. Now I’m hoping I can negotiate this at the end of my lease, but I think there is a high probability that they will want to full $15k. In which case, If I bought it out, my total paid would be $28k!
That’s $4,000 more than I would have paid if I just financed the car in the beginning!
When you buy or finance a car, your payments will eventually end. Then you can put that extra money towards savings or whatever you want. And you get to keep driving the car for as long as you want!
So your total cost over the life of your ownership is effectively brought down!
Reason 2: New Cars Depreciate in Value the Second they Leave the Car Lot
Now this reason is not specific to just leasing. It doesn’t matter if you buy or lease a new car, it will immediately lose its value when you drive it off the lot.
This essentially means you are automatically upside down on your car. So basically you are paying more for it than it is worth!
This is why you should never buy a brand spanking new car. Buying a car that is slightly used will ultimately save you lots of money in the long term.
There are so many people that lease cars and end up not liking them. Then they turn it back into the dealer with barely any miles on it!
This is an awesome opportunity for you to get a better deal on the car that you wanted to buy new!
Ultimately, I wish I had gone this route. Once I figured out the car I liked I should’ve found the exact car I wanted with a few miles on it and a year old and ultimately saved myself thousands of dollars!
Reason #3: At the End of the Lease, You Have to Turn the Car in With Nothing to Show For It
As I mentioned above, at the end of the lease you have to turn it back into the dealership.
Or you can decide to buy it out.
When you turn the car in, you don’t get anything in return.
You just give it back and the car company will then re-sell it to someone else and they get to keep the money!
If you own a car, you can sell it when you are ready to get rid of it and you get to keep the money!
When I sold my old car privately, I got $4500 and that helped kickstart my emergency fund!
Reason #4: If you Want to Get out of a Lease Early There are Crazy Fees
So what happens if you sign on the dotted line and lease the car, then get it home and end up hating it??
Well, getting out of a lease is pretty tricky. You typically will have to pay the balance due plus crazy fees!
So now you are stuck with a car you hate and if you want to give it back, you still have to pay for it!
Reason #5: Leases Come with Mileage Limits
Typically your lease comes with a specific number of miles and you get charged for any extra miles at the end of your lease!
This can add up to thousands of dollars extra if you aren’t careful!
For example, my lease came with 7,500 miles per year. I thought it might be tight, but thankfully I am way under my miles due to the pandemic.
But then again, I’m also paying hundreds of dollars a month for a car that I don’t drive very often! Whomp whomp 🙁
Reason #6: You Must Keep a Leased Car in Good Condition
Since you are technically “renting” a car, you need to make sure that you keep the car in good shape.
If you have any accidents, you will need to get any damage fixed before turning it back into the dealership.
The car company also decides what shape is acceptable, and if they deem your car in not great shape, they could charge you more fees.
On the other hand, if you scrape a car that you own, you can decide if you want to go through the trouble of getting it fixed or not. It’s your decision, not anyone else’s!
Reason #7: You Must Follow the Manufacturer’s Maintenance Requirements
If you don’t keep up with the maintenance on a leased vehicle or get your car serviced somewhere other than the dealership, you can be in violation of your lease, which can cost you more.
I just took my car to the dealership for an oil change. Turns out the requirements for year 2 or 20,000 miles (even though my car just hit 10,000 miles), the recommendations/requirements totaled $480!
I gawked at the cost! Why is any of this necessary? I asked if I had to get everything done, and the guys said yes, but then he said I could pick and choose? He then recommended a few things and brought the cost down to $280.
It’s still an insane cost, and I feel like I got scammed.
But I also wasn’t 100% sure if I had to do all the things, or not.
With my old car that I owned, I used to pay $40 for an oil change.
Or if I wanted to, I could learn how to change my own oil. But If I did that on my current leased car, I would be in violation of my lease.
Reason #8: Registration Fees and Insurance can be Higher on Newer Cars
Now I do not know how all of the state’s registration fees work, so this is not a blanket statement.
However, I live in California and can tell you my registration fee is hundreds more than the fees on my older car.
Also, the leasing companies typically require that you hold higher limits on your insurance. Which can cost a lot more! This leads me to Reason #9.
Reason #9: If you Get in an Accident, your Lease Terms are Still the Same
If you total your car, you better hope your insurance is good enough to cover all that you owe!
If you find yourself in this terrible situation, you could end up still having to pay a lot to the leasing company for a car that is a total loss.
Reason #10: You Can’t Customize a Leased Car
And lastly, typically you are not able to make customizations to a leased car.
You will need to read the terms of your agreement to know exactly what is allowed and what isn’t.
Who Could Leasing Make Sense For?
1. If you own a small business and drive for that business, you can typically deduct the cost of the lease along with your other car costs.
For example, I work for Instacart as a side hustle (read my post about making extra money with Instacart here). I can deduct all of my car costs on my tax return!
2. If you are someone who really values having a new car every year and is comfortable with the costs as part of your budget, then by all means leasing could make sense.
But I really urge you to look at why having a new car every few years is important to you. It usually does not make any sense to spend so much just to drive a new car, when that money could be put to better use elsewhere.
If you are already in a Lease, What can You Do?
There are a few websites that you can post your lease on and other people interested could take over your lease and the payments. This is a lease transfer and you can do this on Swapalease and LeaseTrader.
You could pay off your lease early. Which is not the best idea because of the costs.
I’m still not sure if you can negotiate a lower amount to buy out your car but it doesn’t hurt to try. (I’m thinking I am going to try to negotiate a lower cost to buy out my car, but we will see if it works!)
Check out this post on Credit Karma about the options for getting out of a lease.
What you Should do Instead of Leasing a Car
In my opinion, I think the best route to go is to save up to buy a slightly used car in all cash (if possible). If all cash isn’t possible, that’s ok! You can save up for a decent down payment and finance the rest.
Make sure that you search and compare interest rates at different places to get the best rate! Credit unions are a great place to start because they typically offer the lowest rates.
Don’t ever accept the first interest rate you get, shop around to see if you can do better!
Use a website like Monevo to compare rates online easily!
Now that you have read the 10 reasons not to lease a car, do you think you will ever lease? Or have I convinced you that owning is the way to go? Let me know in the comments!
If you are interested in credit card hacking, check out these posts: