There’s a lot to like about leasing a vehicle versus buying it. For starters, payments are typically cheaper, allowing consumers to afford a car that they may not otherwise have been able to purchase. Then, of course, there’s the benefit of reduced maintenance costs and the fact that even a 3-year lease ensures you’re in a new, updated vehicle when it’s time to turn the car in at the end of the term.
Yes, leasing also has its drawbacks. But one of the biggest emerging drawbacks has the potential to shake up the leasing versus buying debate as we know it: cost.
That’s right, the cost to lease a car is trending up. In fact, according to CNBC, consumers can expect to pay about $1,500 more for a vehicle leased today compared to 3 years ago. That equates to about $40 more a month on a standard 3-year lease. And being that a record 4.3 million consumers have a car lease that ends in 2019, many may be in for a rude awakening when it comes to securing a new leased vehicle.
Why is Leasing Becoming More Expensive?
The biggest reason it’s costing more to lease is because cars are more expensive. In March 2019, the average MSRP of a new car stood at $36,500, and only about 30 percent of new vehicles that hit the market these days are priced below $30,000. For comparison’s sake, more than half of all vehicles had an MSRP below $30,000 in 2012.
The reason behind more expensive vehicles all has to do with consumer preferences. Many automakers are moving away from cars and compact vehicles to develop more SUVs. Ford is great example of this, as the automaker is discontinuing its popular Fusion and Taurus sedans, and versions of its Focus compact car by the end of 2019 to focus more on SUVs and trucks.
Another big factor in lease cost increases is the fact that vehicles these days aren’t holding residual value as well as they used to. While it’s true that a vehicle begins to depreciate as soon as it leaves the dealer’s lot, dealerships bank on being able to still sell turned in lease vehicles for profit on their used car lots. But with vehicles not holding their value as well, they want to ensure they’re making up for it during the lease itself.
Is it Still Worth it to Lease?
The average monthly lease payment currently sits at $487. That’s compared to $548 per month for a new car purchase, and $411 per month for a used car buy. As you can see, the gap between financing a vehicle to own and leasing one is narrowing.
So is leasing still worth it? Like we said before, both buying and leasing have their fair share of pros and cons. The good news is if you’re still committed to leasing, there are ways you can negotiate the monthly payment down. For instance, your monthly payment is on what the car is valued at following the expiration of your lease. This residual value isn’t negotiable. The purchase price, or price that you’d be able to acquire the vehicle at following the expiration of your lease, however, is negotiable.
Other ways to save include adjusting your mileage limits and seeing if the dealer has any “courtesy transportation vehicles” offered for lease. These are cars that have been used to loan out to consumers waiting for repairs, or pick up or drop off consumers from service appointments. They might have a few hundred miles on them, but they often come with a nice discount. Additionally, the better your credit score, the lower your lease payment is likely to be, so it’s worth it to work on getting that up if it’s below 700.
There’s still a lot to like about leasing a vehicle, even with prices on the up. But all things considered, it’s also not a bad idea to take a closer look at buying either a new or used vehicle as well.
Regards,
Ethan Warrick
Editor
Wealth Authority
