• If you don’t maintain the vehicle in good condition, you’ll have to pay excess wear-and-tear charges when you turn it in. So if your kids are apt to go wild with Magic Markers or you’re a magnet for parking lot dents and dings, be prepared to pay extra.
• If you decide that you don’t like the car or if you can’t afford the payments, it might cost you. You will probably be stuck with thousands of dollars in early termination fees and penalties if you get out of a lease early-and they’ll all be due at once. Those charges could equal the amount of the lease for its entire term.
• With a few exceptions, such as professional window tinting, you need to bring back the car in “as it left the showroom” condition, minus usual wear and tear, and configured like it was when you leased it.
• You’re still on the hook for expendable items such as tires, which can be more expensive to replace on a better-equipped vehicle with premium wheels.
• You may have to pay a fee when you turn in the vehicle at the end of the lease.
An Alternative to Long Loans
Longer loans make it easy to get “upside down”-when you owe more than the vehicle is worth-and stay that way for a long time. If you need to get rid of the car early on or if it’s destroyed or stolen, the trade-in, resale, or insurance value is likely to be less than you still owe.
Buying a car with a loan isn’t the way to go if you want to drive a new car every couple of years. Taking out long-term loans and trading in early will leave you paying so much in finance charges compared with principal that you’d be better off leasing. If you can’t pay off the difference on an upside-down loan, you can often roll the amount you still owe into a new loan. But then you end up financing both the new car and the remainder of your old car.
If your goal is to have low monthly payments and drive a new vehicle every few years with little hassle, then leasing may be worth the additional cost. Be sure, however, that you can live with all of the limitations on mileage, wear and tear, and the like.
It’s difficult to make a fair head-to-head comparison between, say, a six-year loan and the standard three-year lease. At the point the lease ends, the bank borrower still has three years of payments to go, but the lessee has to look for another car-or perhaps crucial link take the lease’s buyout offer.
A lease can also be subsidized, or “subvented.” The automaker either takes money off the top with an extra rebate just for lease deals, or it can raise the residual, or both.
An automaker may also kick in extra rebates on a lease deal, ones not available to a loan customer. In addition, the “money factor” (interest rate) on a lease may be different from the interest rate offered on a loan, making an apples-to-apples comparison almost impossible.
In general, two back-to-back three-year leases will cost thousands more compared with buying a car (with a loan or with cash) and owning it over that same six-year period. And the savings increase for car buyers if they continue to hold on to the car, say, for another three years for nine years total, even factoring expected maintenance and repairs.