When it comes to car leasing, there are advantages and benefits to leasing a car compared to buying a car.  You have to decide whether leasing a car is more suitable to your needs as opposed to financing a car, keeping the vehicle, and saving money over the long term.  There are people who are completely against the idea of car leasing and that’s fine, but there are several advantages to car leasing that favors certain people.

Lower Monthly Payments

This is most obvious reason why car leasing is more advantageous than buying a car.  Monthly payments is nearly guaranteed to be lower on a car lease than purchasing a car because you only pay for the portion of the vehicle that you use.

Drive a Brand New Car Every Three Years

This is the reason why I lease a car.  I get bored of driving the same car.  The benefits to driving a brand new car every three years or so is that you take advantage of the latest in safety, fuel economy, redesign/refreshes of the make and model, and performance advancements.

Get into a More Expensive Car

Due to the lower monthly payments, you will be able to get into a more expensive car.

Car Manufacturer Warranty is Covered During Lease Period

The most common car lease period is 36 or 39 months and the car manufacturer warranty is usually covered during this lease period.

Low Upfront Costs and Very Little to No Down Payments

It is always recommended to put as little down as possible when leasing a car because if your leased car gets totaled in an accident, you lose your down payment.  You never know what’s going to happen so it’s best to put down as little or no down when leasing a car and yes, that means your monthly payment will increase.  Don’t be fooled by all the car ads that advertise low monthly payments with a $2499 down payment.  In all my years of leasing, I’ve either had $0 due at signing and everything rolled into the lease OR just the usual first month’s payment, tax, title, and registration.

Monthly Payments and Interest Rates Remain Constant

Leasing a car guarantees that the interest rate does not change and the monthly payments remains the same throughout the life of the lease agreement.

Simple and Easy End of Year Lease Options

The most common end of year lease option for most lessees will be to simply turn in the car at the end of the car lease agreement.  You also have the option of keeping the vehicle and financing the car as if you were buying the car or you can trade it in by selling it to a third party and pocketing the difference if there’s positive equity on your vehicle.  If there’s negative equity, then you simply turn in the vehicle and walk away.

Gap Coverage Is Included

Gap coverage, in case your vehicle gets totaled or stolen, is included in most leases as a way to protect yourself if your insurance doesn’t cover the full loss.  Loans generally do not come with gap insurance.

Multiple security deposits (MSD)  is offered by most leasing companies, however, not many lessees and dealers know about the MSD program available to many consumers with less than excellent credit (< 700 FICO score) required to get the best interest rates (aka lowest money factors).  Some manufacturers will allow you to pay MSDs to lower your interest rate (money factor) on your lease.  If a multiple security deposit program is available, you usually pay more than one security deposit (equal to one month’s payment and in some cases, one month’s payment rounded up to the nearest $50).  The amount in which your interest rate lowers by each security deposit varies by leasing company, but the lower interest rate results in a lower monthly payment.  Remember, a multiple security deposit is not a down payment.  At the end of the lease you will receive your MSDs.

For example, if I’m not mistaken, Infiniti offers an MSD program that allows a lessee to pay up to nine security deposits.  For each MSD you give to Infiniti, your money factor goes down by 0.0001 (or 0.0001*2400= 0.24%).    This means your monthly payment will decrease and you get your security deposit back at the end of your lease.   Let’s say the monthly payment is $400 a month.  You pay 9 security deposits at $400 each or $3600 at the time of signing the car lease agreement.   This is not a down payment.  Your money factor gets lowered accordingly and thus you pay the adjusted lower monthly payment.  The difference between a MSD and a down payment is that at the end of the lease you get your MSD returned while a down payment is applied towards your lease price of the car.

If you go to your dealer and your dealer says that the MSD program is not available, they could be telling the truth.  Or they are denying you the option because it’s simply more work on their part to get this process started with the financing company.

Many leasing companies will offer an excessive wear and tear waiver for lessees that lease another car with the same car maker.  This waiver or credit is often part of a lease loyalty program that nearly every automaker offers.   Once you are ready to return the leased vehicle, the leasing company will apply the wear and tear waiver as long as you have signed another lease agreement with the same leasing company.

An example is when I leased an Infiniti G37.  At the end of the lease agreement, Infiniti had a lease loyalty program that included a $1000 loyalty rebate that could be applied towards my next lease with Infiniti.  Additionally Infiniti offered a $500 excessive wear and tear on the vehicle I was returning.  When I returned my vehicle, I had an excessive wear and tear charge of $318.  If I leased another Infiniti, I would have been able to take advantage of the $1000 loyalty rebate and the $318 would have been waived thanks to Infiniti’s wear and tear waiver.  If I decided to pass on leasing another Infiniti and go with another automaker, I would have had to pay the $318 out of pocket.

The wear and tear for a car lease is included in the car lease agreement.   Car lease agreements will state what the lessee is responsible for upon returning the leased vehicle.   Once you return your leased car to the dealer, the dealer will verify the mileage and ask you to sign a document that confirms the return.  But, the process does not end there.  The leasing company will then do a thorough inspection for wear and tear of the car you returned and bill you, if necessary.

Normal wear and tear usually refers to small scratches, small scruff marks on the wheels and the body of the car as long as repainting is not required, slight wear on the interior, and small areas of chipping.  Excessive wear and tear usually refers to holes, chips, and cracks in the glass and body, deep scratches that require repainting, burns or tears in the interior, and any broken pieces.

All lease companies request that you go through a pre-lease return inspection to identify the expected excessive wear and tear charges.   You will receive a document that includes the date of the inspection along with estimated charges.  You then have the option of returning the leased vehicle and waiting for the bill to be sent by the leasing company or you can get it fixed yourself by taking it to your auto shop.  If you take it to your auto shop to get any damages fixed, be sure to save the receipt and send a copy of your receipt to your leasing company to prove that you have corrected any excessive wear and tear on the vehicle.   It’s not always cheaper to go with your local auto shop.

The acquisition fee is also known as a bank fee and is always added to the cost of the lease, however, it is up to the dealer to disclose the amount of this fee.    I have signed four lease agreements and every one of those agreements clearly indicated the amount of the acquisition/bank fee.  However, when negotiating with various dealers, dealers rarely disclosed the amount of the acquisition fee unless I specifically asked for the amount.

This fee is nearly impossible to negotiate since it is not the dealers that come up with the number.  Dealers get this number from the lease companies, but it is up to the dealer to decide whether to mark up the acquisition fee for dealer profit.  Acquisition fees vary from car maker to car maker.  This fee is not a scam and I’ve never encountered a dealer that marked up the acquisition fee for additional profit.  It’s just one of those things that you have to accept when leasing a car, but be sure you realize what the acquisition fee is so you can account for this fee.

Here is a link to a list of lease acquisition fees.

Here is a list of lease acquisition fees (bank fees).  If you have been given a different acquisition fee, please comment below.  The number you see here could have changed or you are working with a dealer who has marked up the fee for profit.

Acura - $595
Audi - $695
BMW - $725
Buick - $795
Chevrolet - $795
Ford- $595
Honda - $595
Hyundai - $595
Infiniti - $700
Jeep $795
Lexus - $695
Lincoln- $595
Mazda – $595
Mercedes Benz – $795
Nissan – $595
Porsche – $895
Range Rover – $795
Subaru - $595
Toyota - $695
Volkswagen – $595
Volvo – $695

The difference between a lessee and a lessor for auto leasing is easy to understand.  When engaging in an auto lease agreement, the party that creates the lease agreement, a legally binding contract, is the lessor.   The party that signs this auto lease agreement is the lessee.   The lessor receives payment from the lessee in exchange for the lessee to use the vehicle for the agreed upon time period for a specified amount.

The only source I’ve come across that clearly indicates the number of new cars leased versus the number of new cars purchased come courtesy of the Bureau of Transportation Statistics.   I’ve done some quick analysis to look at the trending of the percentage of cars leased versus cars purchased from 1990 through 2010.

Here are some notable stats on the % of cars leased.

• As of 2010, 20% of all new cars are leased.
• The percentage of new cars leased was its lowest in 1990 at 7% of new cars leased and reached its peak in 1999 at 24%.
• The percentage of new cars leased increased from 1990 through 1999, then saw a decline from 2000-2005.
• The average percentage of new cars leased is 18% of new cars vs new cars purchased.

% of New Cars Leased vs New Cars Purchased

(source: Bureau of Transportation Statistics)

The process of leasing a car is, in theory, the same as when you purchase a car, yet many consumers in the market for a new vehicle are often misguided by common misconceptions about car leasing. The concept of car leasing is the same as it is for any kind of lease in the world today such as leasing equipment and buildings.

Leasing does not equate to renting.  Many consumers mistakenly use these words interchangeably. Renting refers to a shorter duration of time, typically 30 days. The owner can increase or decrease the rental rate and can change the terms of the contract without notice. An example of this is as car rentals. Leasing, on the other hand, is a written contract used to refer to longer durations and cannot raise the monthly payment until the end of the contract.