Did you know that almost 20% of new cars in the third quarter of 2022 were leased? Instead of buying a new vehicle, some people choose to lease a car instead. They borrow a car from a dealership, agree on a set term, and then pay a fee to use it. Leasing a car is a popular practice among businesses, but it’s also a great option for individuals who are looking for a cost-effective alternative to buying one.
How Much Does It Cost To Buy a Car?
If you’ve been looking up car prices for a while now, then you’ll know car ownership doesn’t come cheap. Today, a brand-new car typically sells for around $48,000 on average, but most manufacturers offer auto loans that you can pay in monthly installments. In 2023, the average car loan was $40,850, with an average monthly payment of around $730. This means that most car owners pay a total of $8,240 in interest fees over a 60-month loan.
Some states will also charge a vehicle sales tax and other fees that often amount to 8% to 10% of the vehicle’s actual price.
How Much Does It Cost To Lease a Car?
Because you don’t actually own the vehicle, you don’t have to pay its full market price. Lease payments are typically based on the difference between the price of the car when it first hit the market and its estimated value at the end of the lease. Here’s a list of car lease costs to expect:
Monthly Payments
In 2024, the average monthly lease payment is $520, but this can vary depending on several other factors, including the lease term, mileage expectations, and down payment.
Down Payment
If you’re lucky, you might score a leased car without a down payment, but most dealerships will require one upfront. They’ll set a minimum amount that you can follow, or you can shell out more money to lessen your monthly payments.
Acquisition Fee
Also known as a bank fee or an administrative cost, the acquisition fee covers all the paperwork and associated expenses by the dealer.
Money Factor
This is the interest rate determined by your dealer based on your credit score. If you have a good credit score, your dealer will most likely charge you a lower interest rate.
Insurance Costs
Some dealerships will require you to get higher coverage limits on top of gap insurance. If the car gets stolen or badly damaged, gap insurance will cover the difference between what the vehicle is currently worth and what you owe on the lease.
Maintenance Costs
While leased cars are often covered by warranties, this doesn’t always include maintenance and repairs. You’ll have to pay out of pocket for any paint scratches or broken mirrors.
Disposition Fee
When returning the car at the end of your lease, leasing companies will charge you a disposition fee. This can range from $350 to $1,000, depending on the type of vehicle.
Excess Mileage Charges
When leasing a car, dealerships and leasing companies will set a mileage limit that typically ranges from 10,000 to 15,000 miles annually. If you go above the agreed limit, you’ll have to pay an excess mileage charge that usually costs 20 to 30 cents per mile.
Wear-and-Tear Fees
Some wear and tear is expected, but your dealership might define that a little differently. Before returning the car, it’s best to clean and repair any minor damages by yourself. This is because dealerships might charge you expensive fees just to repair scratches or stains on the upholstery.
Early Termination Fee
If you end your lease before the term, your dealership will most likely charge you an early termination fee. This can be pretty expensive, so most people advise against ending your lease early.
What Are the Benefits of Leasing a Car?
Leasing a car is a popular option for many, and it’s no surprise why. Here are some of the advantages of leasing a car:
Drive a New Car
The cost of leasing a newer car is often much more affordable than buying one. This lets you enjoy the benefits of all the latest technology and security features without breaking the bank.
Less Maintenance
Dealerships usually offer brand-new vehicles, so you won’t have to worry about any expensive repairs. However, you still have to shell out money for oil changes and other maintenance services.
Lower Payments
The average monthly payment for a financed car is around $620, which is around $110 more expensive than the average monthly payment for a leased vehicle.
What Are the Disadvantages of Leasing?
Unfortunately, leasing a car comes with its fair share of disadvantages. Here are some examples:
No Car Ownership
At the end of your lease, you’ll have to return the car back to the dealership. You won’t have a car to call yours even after spending all that money. You’re also back to square one, where you have to decide between leasing another car or buying one.
Less Freedom
Leased vehicles come with a lot of rules. You can’t change the paint or upgrade any components, and you have to stay under the set mileage limit.
Expensive Fees
Acquisition fees, insurance costs, and other fees can pile up pretty fast. Add that to your monthly lease payments, and you might end up paying a lot more than you first expected.
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Any information provided on this Website is for informational purposes only and is not intended to replace consultation with a professional mechanic. The accuracy and timeliness of the information may change from the time of publication.
