Every day in our lives we see some sort of car advertisement whether it is on TV or simple billboard as you are passing by with such a low monthly payment that makes you think “Wow, this is a smoking deal, why don’t I lease these new wheels for such a low price?” I am here to prove you that it is a really bad idea to lease a car as a college student.
Simple rule that applies to these car advertisements is that they have really mastered this kind of business to get attention from people. Simply put, that $99 per month for a vehicle really does stand out, but don’t get caught into the reality of this cheap monthly payment.
First, let’s break down some basics of leasing vehicle
What is a Car Lease?
It is important to understand, leasing is different from owning. It is an agreement to use the vehicle for a set amount of time, like car rentals where you pay for only the time you need the car for. A lease have a term, usually starting at 24 months (2 years) and go up to 60 months or 5 years.
Leasing a vehicle is becoming a very popular way of owning a car (oh wait, it’s not really your car).
Okay, let’s talk about some positives. It is great primarily because you get a brand new spanking car of the current or next year model for set amount of time instead of paying that sticker price of the vehicle and another reason would be good is if you are using your car for business where you can write it off for tax reasons, but not many young adults run a business. But in case you do, then leasing might be the best option.
Yep, that’s it. That will be enough for the positives. Let’s talk about bad things about leasing a car:
- Limit on Miles – Simply put, there is a limit on how much you can drive a year which is today most commonly at 10,000 miles which equates to 27 miles per day. So, if your commute is longer than that, then be prepared to pay at least $0.20 (or more) per mile after 10,000. If you are into road trips often, then this is definitely not a way to go. Oh, it gets better…
- Early Termination Fee – Can’t Afford Your Payments? Well, too bad if you can’t afford the payments anymore after few months. Because you signed an agreement and early termination will cost you money ranging from $300 upwards of $1000’s, plus any remaining depreciation cost.
- Modifications, serious wear/tear? Nope… – If you are into customizing your vehicle or have pets or serious scratches, then expect to be charged a fee when you return the vehicle. If your car has oil drips, food stains, or any damage that stands out, then be prepared to pay for these before returning it. It is simple, you should baby the car and any noticeable damage even from door dings, should be taken care of before returning to avoid paying a fee. Better be safe than sorry later!
- The Car is Not Yours in the End – You must give the car after whatever amount of time that you signed the contract for and thats it. There is an option to buy it out in the end, but many choose not to after their first experience.
Think of leasing a car is like renting any room or apartment. You get fees for excessive use on utilities, or before moving out your landlord finds dirty spots or scratches on walls and don’t give you your deposit back. It has many similarities.
My Pick on Leasing vs Buying for College Students
Hopefully, you understand by now some major basic factors on leasing a vehicle, let’s touch the basis on whether buying is the way to go. The major drawback of buying is that it will require a lot more money put upfront which college students don’t really have. Then, you left with alternative of taking out a loan.
Your credit score will affect the interest rate and I talked a lot about credit importance and why you NEED to care. If you have a low score, this definitely not a good way to go, but you can learn how to Improve You Score by 100+ Points in Just 6 Months and then apply for one. If you want to get your credit report, you can get 20% off your FICO score here.
When buying instead of leasing, you don’t have to worry about wear and tear much, but you should still baby it. You will most likely spend time in it every day, so let it be part of your life. In the end, depending on how good of a condition of the car, you can consider trading it in with some great bonus offers and drive a new vehicle out.
Here’s a simple comparison Buying vs Leasing from Business Insider:
Sure, there are negatives on both sides, but in the end – buying is still the best way to go in many aspects, so if you find yourself choosing whether you should buy or lease, then ask yourself whether you want to own the car eventually or do you want to keep making payments and if something were to come up in your financial life especially as a college student, then be prepared to pay a high price for ending that contract early.
So, Should You Lease A Car or Not?
Leasing might be a great option for people who are looking for short-term lease, because it is cheaper than buying. If you are looking for 2+ years, then buying is the way to go. However, you can really make it a great investment if you keep it for much longer than your loan term, and if you keep it for 10+ years and the car performs great, pat your head and keep your head high because you have made a great financial move. Check out the secrets that car mechanics don’t want you to know.
If you want to drive a new car though and don’t care much about your financial life, then nobody is stopping you because cars these days really are appealing. But for those who care about financial well-being and care about future, then buying and paying it off is the way to go. Check out my post on Emergency Fund with some fascinating statistics.
If there is one thing I want you to get from this post on buying vs leasing a vehicle for college students it is to make a smart financial move for yourself. Dealers do make great deal of money by leasing you a car and also by most likely charging you for wear and tear in the end, as well as them selling it after you trade it in for more profit. Get a car and actually own it, don’t take the route that majority of people get trapped in.
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