The feeling of buying a new car is both exciting and daunting. You look forward to the freedom a car allows when traveling. But you have a lot of options and need to know if you’re able to afford it in cash or lease it.
If you don’t have the cash to buy it, you have the option to go for leasing. Leasing a car has its pros and cons, and it’s definitely not for everyone.
Leasing is basically renting a car for a set period, like a few years. You pay it off monthly and at the end of the period, you simply return the car.
One of the perks of leasing is that you can try out new cars in the market every few years. But there are also a few drawbacks to consider.
In this article, we’re looking at the most common problems people face with leasing a car.
Let’s get into it.
Table of Contents
1. Increased Insurance Premiums
Car leasing is great at attracting customers with a quick process of driving your car out of the lot. It’s relatively easier in terms of the process and signing up for your car.
Car insurance is a must when you own a car because it puts your mind at ease and comes in handy when you’re cash-strapped. The process of signing up should be just as easy and also affordable for the car owner.
When it comes to leasing, the insurance premiums are high, and this adds to the overall vehicle maintenance costs.
It’s no secret that the more expensive a car is, the higher your insurance premiums will be. A small compact city car will have higher insurance costs than a premium SUV or sedan.
Other factors, such as location and your individual risk profile, also determine insurance costs.
Most car leasing companies require that you take comprehensive cover for the vehicle. Comprehensive insurance is usually more expensive than if you have the option to choose your own cover.
Because the company still owns the car, they want to protect their property with the best insurance policy. This means that they will require that the car have a comprehensive insurance cover.
Depending on which state you live in, there will be minimum insurance coverage required by law. For a leased car, there will be more insurance requirements.
This is on top of the required insurance by state law.
With that said, if you happen to have a riskier profile, you are likely to pay more in car insurance. A higher risk profile is when you’ve gotten into accidents or have more traffic violations than usual.
Leasing companies run a background check to determine your risk profile, which is given in scores. The lower your score, the more expensive your insurance premiums.
On the other hand, with cars that aren’t under a lease, you get to choose your insurance premium. You can go for a cheaper alternative to comprehensive cover.
2. Mileage Restrictions
Mileage is of great concern for vehicle leasing, especially if you commute long distances to work. You want the freedom to go on a long road trip without the need to worry about mileage restrictions.
Mileage restriction is when you only get a certain mileage number to use annually. If you go over the set mileage, you pay more.
Needless to say, this is not welcomed by drivers who like highway driving or long-distance road trips. Long road trips or highway commutes often use a lot of mileage.
Mileage restrictions on a leased car is one of the most annoying features for car buyers. It means you have to always be planning your long trips way ahead of time.
This lets you keep an eye on the mileage used so that you don’t go over the limit. Even though the mileage restriction is annually, it still gets frowned upon.
Another huge issue with a leased car is if you use the vehicle for long work commutes every day. You might have to go with the option of high mileage.
A high mileage lease means that the mileage restriction is much higher than a standard mileage plan. You have to know in advance how much mileage you use annually according to your driving habits.
A high mileage plan on a leased vehicle also means you’ll pay more in monthly payments. It is also in addition to the higher insurance premiums on your leased vehicle.
On the other hand, if you have a financed car or one that you got for cash, you don’t worry about mileage restrictions. This also goes for lower insurance premiums and overall vehicle ownership costs.
This is one downfall that most people consider when leasing a car. Some trips are often unplanned, and a restriction on mileage would be onerous.
People who lease cars often complain of having to borrow another car or use other means of transport. This is cumbersome but can also mean you stick to your mileage restriction in order to avoid penalties.
3. Difficulty Getting Out of Lease
A lease is much like a phone contract where you get to use the phone for a few years until you’re eligible for an upgrade. The issue with a car lease is that at the end of the period, you don’t get to keep the car.
A simple contract can be easy to get out of because you just have to make sure payments are up to date. You can then sign off the contract and end it.
With a car lease contract, it’s often not as easy as that. Leasing companies are known for adding extra costs to keep you in the lease.
For example, it’s quite difficult to get out of the lease if you’re in it for the first 6 months. Another issue is the extra costs once the lease period ends.
Some companies are known to add on extra fees, such as wear and tear costs and mileage restriction costs. If anything is broken and not fixed when the lease period is over, the amount is often up to you to pay.
Another issue that annoys people who lease cars is that the companies are usually not upfront about the costs. This means that you might get a huge surprise when looking to end your lease.
This gets as far as consumers suing companies for wrongful costs on their contracts. This is usually because there are added costs when you want to terminate the lease early.
An early terminated lease means you can get out of the contract early, but it also means you have to pay off the remaining balance owed to the leasing company.
The best way to determine how much you’ll pay for the termination fee is to consult your leasing company.
A contract can also stipulate how much you’ll pay in early termination fees if the contract period has not ended.
Options for Getting Out of Your Lease:
- Early termination
- Lease buyout
- Lease transfer
It’s worth noting that terminating your lease early in your contract will cost more. This is because cars are more expensive at the beginning but lose value over time.
A lease buyout is a good option if you want to buy out your contract and own the car outright. It is rather expensive because you’d need to calculate early buy-out fees.
The market value and residual value of the car are also taken into consideration. The best way is to read over the contract and calculate how much it will cost and whether a buy-out is beneficial.
4. Paying for Your Own Repairs
We all know that car repairs can be quite expensive after an accident or if something goes wrong with your car. The more your car costs, the costlier repairing it will be.
Your contract should specify who will be responsible for maintenance and repairs. The vehicle should also come with a manufacturer’s warranty for any factory-related repairs or damages.
A car can break down anytime, adding more costs on top of your monthly insurance and lease costs. If the insurance can’t cover the damage, it means you’ll have to pay it out of your own pocket.
In most cases, the car will have a warranty for covering the repairs. This is usually earlier on in the lease period.
In the case of a warranty that is still active, you won’t have to foot the bill. However, if the warranty is void or the period has ended, it can get quite expensive.
One benefit of having to pay for your own repairs is choosing where to get your car repaired. A repair done by the leasing company can cost up to twice compared to a regular repair shop.
One other aspect of a lease is the wear and tear the car has throughout the ownership period. If the car is excessively worn out, this usually means more fees upon the car’s return.
Excess wear and tear means the car was driven without care compared to other cars in the same segment. When you return the car at the end of the lease, the company will check the car for excessive wear and tear.
Things like dents and scratches on the paint job, or torn upholstery likely mean that you didn’t take much care of the car. If the lease company sees such things, it is likely that you will face a penalty fee.
Upon termination or at the end of the lease, it is a good idea to look at your lease contract. It will likely list all the things the company looks at and how much you are liable for.
5. Requires Good Credit
Insurance companies and lending institutions use a point system for determining if you’re a good candidate for lending money. A credit score determines whether or not you are a risk or have the means to pay and uphold a contract.
Credit scores are used when a lending institution is involved and wants to know if you’re in good credit standing. This score usually ranges from 300 to 850.
Credit Score Ranges
- 300-579: poor
- 580-669: fair
- 670-739: good
- 740-799: very good
- 800-850: excellent
A low credit score means you are a risk and not likely to keep up with payments and obligations. A low score can also indicate that you do not have any credit solutions like a credit card to establish a credit history.
A high score means you have a good credit profile and can keep up well with credit obligations. A lender or banking institution looks at this favorably and will give you the best offers.
When leasing a car, the company you’re leasing from will take your credit score into consideration. They will likely give you better offers and rates and a wider range of repayment options.
A score of above 650 is usually regarded as average to good, while a score above 800 is excellent. However, a great credit score does not automatically guarantee acceptance or great offers.
In most cases, a score above 500 is enough to get you in the door for being considered for car leasing. However, the company will also look at other factors such as income and expenses and whether you’ll be able to keep up with monthly repayments and obligations.
Just like buying a car outright, it’s in your best interest to shop around different suppliers and choose the best deal for you. Not all companies are the same and looking around will save you some money in the long run.
6. No Customizations Or Modifications
When a lease contract is taken out, there are usually no customizations allowed on the vehicle. You cannot install aftermarket upgrades to the car.
Additions like an upgraded sound system or a performance upgrade to the engine are not allowed. The vehicle has to be in its original condition for the duration of the lease.
Unfortunately, not everyone will want a mint car for over 3 years if the contract is that long.
Modern cars often come with the latest tech to be more convenient for the driver. The problem with the latest tech is that it gets old after a while.
When it eventually gets to a point where you need to upgrade vehicle components, it gets tricky on a leased vehicle.
Not all leases are the same, and all precautions should be taken seriously by reading the contract over.
Some leases do allow temporary modifications to the car with a few conditions. Many times, a lease contract will stipulate whether or not modifications are allowed.
Common Types of Modifications
- Temporary modifications
- Permanent modification
A temporary modification should be something that can be easily removed and does not affect the car’s functionality. Stuff like a window tint are floor mats are considered a temporary modification.
A new paint job or upgrade to engine components are considered permanent modifications. Depending on the type of lease you have, these are often not allowed on the vehicle.
Leasing companies usually come with hefty penalties when they see a permanent modification to the car upon return.
At the end of the lease, the car will be returned to the company to be inspected. The inspection looks at modifications and upgrades to the car and the condition the car is in.
It’s a good idea to look at the lease contract thoroughly to determine what kinds of upgrades or modifications are allowed. This will save money and headaches when it’s time to return the vehicle.