Your car is on its last legs, and you’re ready to upgrade. Maybe you’re just not ready to commit to another car for almost a decade. Or maybe you’ve seen your neighbor’s Lexus and want one for yourself. Thanks to leasing, you don’t necessarily need Richie Rich’s budget to afford a luxury car. As long as you do your research beforehand, leasing can be a great way to have your cake and eat it too.
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What Will Leasing a Car Do for You?
Leasing a car isn’t something you should rush into. If you have a stable financial history, though, there are two big reasons why you should lease a car instead of buying one.
Your Monthly Payment
You might have your eyes on a car with a much larger sticker price than your wallet can bear, and leasing is a tempting option. Leasing works by only charging you for a partial amount of the car’s worth, based on the difference between its current worth and its projected worth when your lease ends.
Since the average car is depreciating about 13 percent annually, and most leases last around three years, your lease payment is probably only going to be based on roughly 40 percent of the car’s value. Of course, the dealership isn’t going to let you get away that easy. You’ll likely have to pay an acquisition fee, be restricted to a certain number of miles to maintain the cars value, and have a few other stipulations depending on your dealership. But your monthly payments will still be noticeably lower than if you had bought the car.
Just like if you got any other type of loan, as long as you consistently pay your monthly bills, it’ll help to boost your credit. Furthermore, with a lease, you will probably be paying for a shorter amount of time, so there will be less opportunity for you to miss a payment or be late. This puts you in an excellent position to improve your score.
When Should You Lease a Car?
Even though leasing a car might be tempting, it’s important to stop and think for a second. Just like any other financial decision, there is a right time and a wrong time to lease a car.Make sure you can check off this list before you rush to the dealership.
- You are not trying to get a home loan in the next year. Having this big of a debt, whether it is from buying or leasing a car, can make it difficult to get an expensive dream house.
- You already have a decent credit score. You will have to have at least a score of 500 to qualify, although your interest rates will be so high that it probably won’t be worth it. 600 or above is okay, and if you are lucky enough to have a 700 plus credit score, you will get access to some of the best deals.
- You are looking for something to drive around for a couple years, but you don’t need to build equity.
- You have a good idea of how many miles you drive per year, and it’s a low to moderate amount. If you put too many miles on a leased car, they will charge you per mile you go over, and that can add up very quickly.
When you can meet these requirements, the next step is just to pick the car for you. Leasing a car is a big decision, just as big as buying one, so take your time. Feel free to stretch into a price range you wouldn’t consider for buying, and be ready to negotiate with your dealership. Before you know it, you can be driving off the lot with a manageable monthly payment and a sweet ride.
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