Many of us lease our
cars. Leasing is better for most people, but not everyone. (Full
disclosure: all things being equal, we would rather see a customer
lease because owner loyalty is higher---lease customers pay less to
drive a nicer, safer car that's under warranty, and their
satisfaction is higher. The margins in auto retail are thin so we've
built our business on the volume of repeat and referral business from
happy lease customers.)
of People Who Shouldn't Lease
you buy your cars and keep them forever, don't lease. You have
discovered the most economically advantageous way to buy a car.
(Editorial aside: while this can be a good financial decision, it's
not a very good decision in terms of your safety because you're
going to be spending a lot of time in a car that's obsolete in terms
of safety technology. But it's up to you to weigh the cost/safety
Benefits for Everybody Else:
lower monthly payment
safer, more reliable car all the time, and not just when the car is
car protected by warranty with fewer repair bills
cash elsewhere instead of tying it up in a depreciating asset
nothing at lease end with the option to buy your car at a wholesale
miles are cheap to buy on a lease (10 cents per mile up front)
compared to the depreciation on your financed car (more like 25
cents per mile).
insurance is free from Subaru. If a leased car is totaled in a theft
or accident, there's no risk of owing the bank more than the
way to put an end to being upside down in the loan. Instead of
rolling negative equity over into a new loan, nothing is owed at
don't even more people lease?
The biggest objection
most folks have to leasing is that they don't understand it. People
tend to fear and avoid things they don't understand, especially when
they are in an uncomfortable environment (such as a typical
showroom). Here's a quick contrast example between financing and
leasing a $20,000 Subaru for a 60-month loan and a 36-month lease:
\ Bank collects all $20,000
\ Bank collects $8,000
from you over 60 months,
$12,000 (residual) \ from you
over 36 months,
/ plus interest.
Monthly payment: $300
When you get a
$20,000 loan, the bank pays us $20,000 for your car and keeps your
title until you pay off the entire $20,000, plus interest. When you
lease, the bank also pays us $20,000, and keeps the title. What's the
difference? With a loan, the bank wants back 100% of the $20,000,
plus interest. With a lease, the bank only wants you to pay back the
difference between $20,000 and the residual of $12,000. The residual
is a forecast of the value of your car after the lease term, and the
bank stands behind that forecast.
Misconceptions about Leasing
a lease, I don't own anything." When you take out a loan,
do you get the title? Not until you pay off the whole amount. So you
don't really "own" it till it's paid off. A lease is the
same way. The bank retains the title and if you want to own the car
you just pay off the lease.
a loan, I own the car at the end." True. But not much of a
car...a five year old car with higher miles. If the lease saves you
$120 a month for the term of a 60 month loan, that's $7,200 that you
have in your pocket instead of your car. (And that's assuming you
didn't make some additional interest on it by investing it or
putting it in the bank.)
better to own than rent." The reason you should buy a house
instead of rent is because the house usually appreciates. But cars
depreciate. And they have significant costs. Most people who lease
never pay for brakes or tires, for examples, because they don't keep
the car long enough to wear them out. If you finance your car for
five years, you'll almost certainly need tires and brakes at lease
once, plus other repairs.
can't trade the car in before lease end." Actually, you
can. After driving your car for 30 months, don't you think it's less
expensive to get out of a 36 month lease that's almost up rather
than a 60 month loan that's only half paid? Approximately 40% of
people owe more on their loans than their cars are worth---not only
do they not have equity, they are actually "upside down."
don't want a new car every few years. I like to buy new, pay
the car off, and then have the car without a payment."
While you may not have a payment in those out years, there are still
costs. You'll be spending more in repairs to keep an older car on
the road, older cars use more gas and pollute the environment more,
have fewer safety features than modern cars, and are more likely to
break down and leave you in a dangerous situation.
drive too many miles." Cars depreciate about 25 cents per
mile. Yet with a lease, you can buy additional miles upfront for
only 10 cents. At the end, if you go over, they're only 15 cents.
People who put a lot of miles on financed cars usually end up owing
more than they are worth---not only do you not own your car, it owns
had a bad experience with a lease because I drove over the miles and
I had to write a big check at the end." If you had financed
the car instead, don't you think that piling on extra miles would
have substantially reduced the value of the car at trade in time?
Cars depreciate about 25 cents per mile but they only cost 15 cents
on a lease if you go over. If you buy them up front, they're only 10
cents! So if you're concerned about driving a lot of miles, we'll
build them into the lease for you. Either way, you're better off
putting too many miles on somebody else's car!
had a bad experience with a lease because I had to pay for damage at
the end." People who trade in financed cars with damage
have to pay too---because they get less at trade-in time. You don't
get a bill in the mail for it, but you still pay it. Furthermore,
our experience with lease returns is that the Subaru inspectors are
pretty lenient about minor damage because they want you to get
information about leasing, Contact US!