Q: Car leases for individual consumers were rare 20-30 years ago. Now I hear it’s almost half the new vehicle market. What should I know before I lease a vehicle?
A: Leasing provides a way for many people to drive a vehicle they may not otherwise be able to afford to buy, which means their money isn’t going as far. Also, the law requires fewer disclosures for leases than for loans that are used to buy vehicles, yet leases are more complicated and difficult to understand. Finally, leasing can be more profitable for dealers and financers, so they have an incentive to encourage you to lease.
Q: If I do decide to lease, how can I keep my eye on the ball and make sure I get the deal I expect?
A: You will want to understand the limitations on mileage and the charges if you exceed those limits. Make sure you understand what will happen (how much you will have to pay) if you have to terminate the lease early. Make sure you understand what it will cost if you want to buy the vehicle at the end of the lease. And make sure anything you are told and rely on is put in writing.
Q: What are some benefits to leasing a vehicle rather than buying?
A: If your plan is to always drive a new car, leasing may make more sense (for example, you may want to go from one two-year lease to another). Also, if the vehicle is for business use, the tax deduction may make leasing as worthwhile and maybe more worthwhile than buying.
Q: What are some benefits to buying rather than leasing?
A: The total “vehicle price” is typically less in a purchase. Also, if you’re trading in a car, your odds of getting a reasonable credit for it are better when you buy than when you lease. Most importantly, after your last loan payment is made, you still have something to show for it—you own the car. In a lease, the consumer never has any equity in the vehicle.
Q: What should I know if I decide to buy a vehicle?
A: Many people are now getting five-year vehicle loans. Especially due to the rate at which vehicles depreciate, that’s too long. If you can’t afford a loan that’s four years or less, consider a less expensive vehicle. Also, beware of “Bad Credit/No Credit/We Finance Anyone” places. Prices and interest rates at such places are likely to be very high, and the quality you get may not be worth it. Also, be aware that used car warranties, in general, have many exclusions and limitations.
Q: What can I do if my credit isn’t good?
A: Your credit may not be as bad as you think. Check with a few banks and credit unions to see what terms they can offer you. If your credit really is that bad, save up a little money and buy a cheap used car, perhaps from a private owner. For example, financing a $6,000 car at 20 percent interest over five years will total more than $9,500 (not counting repair and maintenance costs). Compare that with paying $2,500 in cash for a car. Even with inevitable repair costs, the difference will likely be enormous in the long run, saving you a bundle.
Law You Can Use is a weekly consumer legal information column provided by the Ohio State Bar Association. This article was prepared by Toledo attorney John A. Blaufuss, and updated by Bluffton attorney Gregory S. Reichenbach.