Why A Car Lease Is A Bad Deal For Consumers

A $200 car payment does sound like a great deal. Have you seen the new 2011 Hyundai Sonata commercials that have been all over television lately? I have to admit that it does sounds like a good deal initially. I would love a $200 car payment. But, it sounds too good to be true. And, I hate to burst your bubble, but it is. Leases have a bad reputation for a good reason. Leases are a horrible deal and should be avoided.

Why A Car Lease Is A Bad Deal

A $200 Payment Is Only Part Of Story

You have to read the fine print of a lease in order to get to the bottom of the story. Not all people who apply will qualify for the lowest payment. Only the best customers with the best credit rating will qualify for the $199 advertised deal. Hyundai’s fine print of its lease advertisements say that some payments will be higher than the advertised rates and some will be lower based on residency and other factors. The customer is responsible for any excess wear and tear of the vehicle over the three years you use it. And, one of the biggest disadvantages of a lease is that you are limited to only 36,000 miles over the life of your lease. If you drive over 36,000 miles, you are charged $0.20 per mile after that. So, if you are like me and drive an average of 15,000 miles per year instead of the conservative 12,000 per year, you would owe $1,800 extra after three years when you returned the car! There is a purchase option at the end of the lease, but the balloon price has to be negotiated at the signing and includes sales tax too.

You Need A Large Down Payment

For a Hyundai that is only $19,195 brand new, a $2,400 down payment on a lease is required which is larger than 10% of the sticker price. I personally do not like putting a large down payment down on a new vehicle. Of course, I end up paying more money every month because of that decision though. But, you do not have that choice at all with a lease. You are required as part of the agreement to make a down payment at the time of your lease of $2,200 in this instance with Hyundai plus the first month’s lease payment.

You Build No Equity

Even though 10% to 20% of the value of your new car evaporates when you drive it off the car lot, you will still have some equity in your car when you pay off your loan. No matter how much of a “hooptie” your car is after four or five years of ownership, it is still worth something to someone. There is still a residual value that you enjoy because you actually own the car. That is not the case if you lease the car. After your lease expires, usually three years in most instances, you do not own one piece of that car. You don’t own a tire, a hubcap, the steering wheel, nothing! Everything is still owned by the car company and you cannot earn any money from reselling it.

There is a reason that Dave Ramsey calls car leases a fleece. The consumer gets taken to the cleaners on car leases. They are not a good deal. The only thing that they are good for is a low monthly payment. But, that is not good enough to outweigh the negative aspects of a car lease.

Tagged as: Cars