Making Sure Your Vehicle Lease Is not a Disaster
Studies show that leasing is becoming an increasingly popular option among Americans. According to Edmunds, in 2009, just over 15% of new vehicles were leased. That number has steadily climbed, and in 2016, pushed past 30%.
A vehicle lease can present a low monthly payment on a vehicle that may be several grades above what a purchaser might otherwise be able to afford. It can certainly be a smart option for certain drivers, and many people swear by the lease option.
Most buyers understand the basic risks behind leasing a vehicle. Extra costs will be incurred, for example, if the vehicle is driven beyond the mileage in your contract, damage is done to the vehicle or it’s turned in with beyond-normal wear and tear. There are, however, other risk that you may not realize:
- In some cases, leases run past the warranty: Most leases cover a period of two or three years. There are, however, leases sometimes available for four years or even more. With a standard vehicle warranty of three years or 36,000 miles (whichever comes first), these extended leases can pose a big potential problem. If you’re leasing the vehicle and have run past the warranty, you’ll likely be on the hook for any major maintenance or mechanical repairs when you turn it in. Remove the doubt; know your warranty.
- Putting too much down: Many advertised lease specials show great low rates, but they often require a bigger down payment. Putting money down allows for a lower monthly payment, yes, but can also leave you exposed. In the unfortunate circumstance that the vehicle is stolen or totaled during the first few months, the insurance company will reimburse the leasing company for the value of the vehicle, but it is unlikely that they will reimburse the money that you’ve already paid. Because of this, it might make sense to make a minimal down payment or avoid making one altogether. Instead, consider putting that money into an interest-generating savings account and doling it out with your monthly payments.
- Not having gap coverage: Gap coverage … we usually roll our eyes when they try to tack it on at the dealership or the rental car place. But with a lease, it might make sense. The value of a new car drops by an average of 10% the moment you drive it off the lot. Again, in the unfortunate instance that the vehicle is stolen or totaled early in the lease, the insurance company will reimburse the leasing company for the vehicle value. That amount might not cover your total obligation laid out in the terms of your lease. Gap coverage will prevent you from having to pay out of pocket for the difference.
In the end, leasing may be a perfectly suitable option for many drivers. It provides a low monthly payment and the option to upgrade and drive a new vehicle every few years. It is important, however, to understand the individual risks that come with each decision.