Car Leasing Reality: 10 Reasons Not to Lease a Car
Leases can be tempting, but these 10 reasons not to lease a car will likely change your opinion.
Contributing Writer at Tally
June 23, 2022
Auto manufacturers offer very attractive lease deals on high-end cars, putting them within reach of people on tighter budgets. These low-monthly-payment lease deals may seem like an unbeatable offer, but things aren’t always as they seem.
Below, we look deeper into leases and uncover the 10 reasons not to lease a car, despite that attractive monthly payment.
Car leasing defined
So what is a car lease exactly? A lease is generally a way to get a new car for a lower monthly payment than financing it with a loan. When you take out a lease, you are effectively paying for the amount of the useful life of the vehicle you use, plus an extra rental fee known as the money factor.
Leases come with fixed terms — typically two to four years — and you will usually pay an upfront cost known as an acquisition fee that acts as a sort of initial down payment on the lease. From there, you’ll owe a monthly lease payment to the leasing company to cover the amount of the vehicle you’ll use, plus the “money factor.”
Because you’re paying for the amount of the vehicle you use, the lease company protects the vehicle’s value by limiting the number of miles you drive. Most leases will include a 12,000 to 15,000-mile-per-year limitation. You'll incur a per-mile fee if you exceed that average throughout the lease.
At the end of the lease term, you have a decision to make. You can:
Return the vehicle to the dealership and pay a small turn-in fee
Buy out the lease for a fixed fee that’s determined at the beginning of the lease
Return the vehicle and take out a new lease, which often results in the dealership waiving the turn-in fee and offering other incentives
Trade in the vehicle for credit toward leasing or financing another vehicle
10 reasons not to lease a car
Why is leasing a car usually a bad idea? Here are 10 great reasons to skip the auto lease.
1. You don’t own the vehicle
While you’re making car payments on your lease, you’re not actually making payments toward ownership. You are simply paying to use the vehicle. However, when you finance a car, your payments go directly toward owning the car.
There is the option to purchase the vehicle at the end of the lease for its residual value. However, you will still pay a significant amount more for the car if you buy it out after the lease than if you financed it outright at the beginning.
2. New cars depreciate very fast
You can only lease new cars — used cars aren’t eligible for leases — and new cars lose 10% of their value in their first month on the road and 20% in their first year. So, this means that even if you choose to buy out the lease at the end of the term, you will still lose a ton of value in depreciation.
Instead of leasing a new car and losing all that value, it’s likely better to finance a two-year-old used car, as its depreciation has leveled out. Or you can buy an even older car with cash and avoid financing altogether.
3. You get nothing when you turn it in
You own the vehicle free and clear when you finish paying a car loan. However, you get nothing when you turn the vehicle in at the end of the lease term. What’s worse, some lease companies will actually charge you a $300-$400 lease turn-in fee, meaning you are now paying them to take the car back. Then, the dealership will simply sell the vehicle on its used-car lot and earn even more money on it.
4. Early-termination fees are costly
Sometimes when you buy a new car, you fall out of love quickly. If you financed the vehicle or bought it outright, you are free to sell it with no extra fees. With a lease, you’re stuck.
You can get out of most leases early, but you must pay a lease-termination fee. On top of that, you often have to pay off any remaining balance on the lease. So, if you are in a two-year lease and decide you want out after 12 months, you will incur a lease termination fee and may have to pay off the remaining 12 months of the lease.
5. Your mileage is limited
Most leases will include a mileage limit that caps the number of miles you can drive per year. Generally, these are 12,000 to 15,000 miles per year and are calculated at the end of the lease. So, if you take out a 36-month lease with a 12,000-mile-per-year limit, you can drive only 36,000 miles over the lease term.
If you exceed the mileage limit, you’ll incur a mileage penalty, which is typically 15 to 20 cents per mile.
Say you have a 36-month lease with a 12,000-mile-per-year limit and drive 40,000 miles during the lease term. If the leasing company charges a 15-cent-per-mile penalty, you may have to pay a $900 mileage penalty when you turn in the lease (6,000 x $0.15 = $900).
6. You must keep the leased vehicle in good shape
While it’s best practice to take care of your car and keep it in good shape, with a lease, this is a requirement.
Leases have strict stipulations on the vehicle’s condition and the immediate repair of even minor flaws, like parking lot dings and light scratches. If you don’t have these minor defects repaired, you can incur a large reconditioning and repair fee at lease turn-in. Leases allow for some wear and tear, but excessive wear will cost you at the end of your lease.
This goes for its mechanical condition too. Fortunately, leased cars generally have a manufacturer’s warranty covering any mechanical breakdowns during the lease period.
7. Maintenance is a requirement
It’s best to keep your car maintained following the manufacturer’s recommendations, but with a lease, this becomes less of a best practice and more of a requirement. Many lease agreements state you must perform all maintenance as the manufacturer recommends.
Some lease contracts will even stipulate where you can have the maintenance performed. These stipulations will generally require you to service the vehicle at the dealership, which may result in higher maintenance costs than a third-party auto shop.
8. Insurance requirements may be costly
Because you’re essentially renting a leased car, the leasing company can stipulate the minimum insurance coverage on the vehicle. In some cases, this includes high limits and low deductibles, which can result in significantly higher car insurance premiums.
9. A total loss can cost you big
If your leased vehicle is in an accident, stolen or otherwise suffers damage that results in the insurance company deeming it a total loss, you could run into issues. If the insurance company doesn’t offer enough of a payout to cover the cost of the lease and the vehicle’s residual value, you may be stuck paying this cost out of pocket.
The only way to ensure this doesn’t happen is to opt for GAP insurance, which covers the difference between the insurance payout and the lease balance in a total loss.
10. The leased car must return in its factory condition
If you enjoy customizing your vehicle, leasing is not a good idea. Most lease contracts require the vehicle to be in its factory condition — no customizations — when you turn it in.
So, while you may be allowed to add custom wheels, tinted windows and an upgraded audio system, you may have to remove all this at the end of the lease or incur a penalty.
Minimize expenses by buying a car with cash
While cheap lease deals are tempting, they’re generally not a good option for most people. The best way to purchase a vehicle is to save and buy a quality used car with cash. This helps you avoid interest charges and lease fees. Plus, it frees up more cash in your monthly budget to invest in your future and build wealth.
Leasing is rarely a good option
While the lower monthly payments for a new car may seem tempting, the numerous costs associated with auto leases mean they’re rarely good options for car shoppers.
In most cases, buying a low-cost used car with cash is the safest bet. Not only does this bypass all interest rates and other fees associated with leasing and financing, but it also frees up cash to build wealth and invest in your future.
One thing you can do with freed up cash is pay off debt. If you’re struggling with credit card debt, the Tally† credit card repayment app can help. The app manages all your credit card payments. Plus, Tally offers a lower-interest personal line of credit that you can use to efficiently pay off higher-interest credit cards.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.