Leasing a car instead of buying one may seem alluring at first glance. The idea of driving a brand new vehicle every few years while keeping your monthly payments low is undeniably appealing.
However, upon closer inspection, leasing often proves to be the costlier and more restrictive option for many Americans.
In this comprehensive article, we’ll explore ten compelling reasons why you should think twice before leasing your next car in the United States.
How Does Car Leasing Work in the United States?
Before delving into the drawbacks, let’s first understand how car leasing functions in America. Unlike buying a car, where you own it outright after paying off the loan, leasing is essentially a long-term rental agreement. You make monthly payments to drive the car for a predetermined period, typically two to three years.
At the end of the lease term, you have the option to:
Return the vehicle and walk away (or start a new lease on a different car)
Purchase the vehicle by paying the remaining residual value
However, there are strict rules and limitations you must adhere to during the lease, such as:
Mileage caps:
Most leases limit you to 10,000-15,000 miles per year, with hefty excess mileage fees if you go over.
Wear and tear restrictions:
You’re responsible for keeping the car in near-pristine condition, with penalties for excessive damage or modifications.
Early termination fees:
Getting out of a lease early often means paying steep financial penalties.
So while leasing offers the perk of driving a new car every few years, it comes with significant strings attached and less overall flexibility compared to buying.
Is There Ever a Good Reason to Lease a Car in America?
There are a few niche scenarios where leasing could potentially make sense for certain American consumers:
You want a new car every 2-3 years
If you genuinely have no desire to keep a vehicle long-term and always want the latest model, leasing aligns with that mindset better than buying.
Business use with tax benefits
Some businesses can write off a portion of lease payments as an operating expense, making leasing more cost-effective from a tax perspective.
Ultra-low mileage needs
If you drive less than 10,000 miles per year with minimal wear and tear, a lease could be worth considering.
However, for the vast majority of Americans, buying a car outright or financing a purchase is usually the smarter choice financially.
Here are ten key reasons why you should avoid leasing your next vehicle in the US:
1. You Don’t Own the Car With a Lease
The most fundamental drawback of leasing is clear: you never actually own the vehicle.
All of your monthly payments are essentially rental fees, building zero equity or ownership stake.
It’s akin to renting an apartment rather than buying a home at the end, you have no asset or investment to show for all the money spent.
With a traditional car purchase or financing, every payment goes towards eventually owning the vehicle outright.
Once the loan is paid off, you can continue driving it for years without any further costs (besides basic maintenance).
You can sell or trade it in towards your next car purchase, recouping some of the costs. But with leasing, you’ll never build that equity position.
Once the lease ends, you either have to return the car and start over or buy it at the predetermined residual price essentially financing or purchasing a used car.
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2. You’re Still Tied Into a Two- or Three-Year Deal
Another major downside of leasing is being locked into a long-term contract. Even a relatively short 24 or 36-month lease represents a significant commitment that may not align with life’s unpredictability.
What if your job situation changes and you need to move out of state partway through? What if your growing family size necessitates a larger vehicle than you originally leased?
With a lease, you have very little flexibility and would face heavy penalties for terminating the agreement early.
However, when you purchase a vehicle either with cash or through a loan you can sell it at any time should your needs or circumstances change.
The freedom to get out of your “car commitment” whenever needed is a huge advantage to buying over leasing.
3. High Contract Break Fees for Leases in the US
Speaking of terminating a lease early, be prepared to pay a hefty price penalty if you ever need to do so in America. Getting out of a lease before it ends typically means owing:
- All remaining payments until the lease was scheduled to end
- A substantial early termination fee, often $300-$500 or more
For example, let’s say you have 18 months left on a 36-month lease with payments of $300/month. If you need to terminate the lease today, you could easily owe:
Remaining Payments: 18 months x $300 = $5,400 Early Termination Fee: $400 Total Early Termination Cost: $5,800
That’s a massive lump sum you may need to pay just to get out of the lease agreement.
In contrast, if you purchase a vehicle and need to sell it for any reason, you can simply do so without owing additional penalties besides the remaining loan balance.
4. Strict Mileage Limits for Leased Cars in America
Another major drawback to leasing is the strict annual mileage limits imposed by most leasing companies in the US. Typical mileage caps range from 10,000 to 15,000 miles per year at most.
Exceed that allotment, and you’ll face hefty excess mileage penalties ranging from $0.15 to $0.30 per mile over the limit when returning the vehicle.
For a family that drives 18,000 miles per year on their leased car, those fees could quickly add up to $500-$1,000 or more at lease-end.
Such mileage restrictions make leasing an impractical choice for those with longer commutes, road warriors who travel frequently for work, or anyone who regularly takes extended road trips.
Buyers who purchase their cars outright face no such arbitrary mileage limits or overage fees.
5. You Pay More Interest on a Lease Than on a Loan in the United States
Contrary to popular belief, leasing is not a way to avoid paying interest fees or financing costs.
In fact, you’ll likely pay more in interest charges by leasing compared to financing a purchase with a traditional auto loan.
With a lease, the interest charges are baked into what’s known as the “rent charge” or “money factor.” This rent charge is higher than the interest rate you’d pay on a car loan from a bank or dealer financing.
For example, let’s compare:
| Loan Interest Rate | Lease Money Factor |
| 4.9% APR | 0.00330 (equal to ~8% APR) |
As you can see, the interest “rent charge” paid on a lease is substantially higher, potentially costing you thousands more over the lease term versus a car loan for purchasing.
And unlike a loan where the interest is paid over time, the full interest gets pre-paid upfront with leasing.
So from day one, a significant portion of your monthly lease payment is already eaten up by interest charges rather than going towards any equity in the vehicle.
6. You Can’t Sell a Leased Car to Finance a New One in the US
One of the most convenient aspects of owning your vehicle is the ability to sell or trade it in towards your next car purchase down the road. But with leasing, this key leverage is completely removed.
When buyers are ready for a new car after a few years, they can shop their current vehicle to multiple dealers and negotiate the best possible trade-in value to lower their next purchase costs. Private-party sales are another option to potentially recoup even more value.
But when leasing, you have no asset or equity to trade or sell. All you can do is turn in the leased vehicle at the end of the term and start over from scratch on your next ride.
That means forfeiting the convenience and savings of a trade-in, while also losing any pricing power or negotiation leverage at the dealership.
7. You Can’t Customize a Leased Car in America
For many car owners, part of the joy and pride of ownership is the ability to customize and modify their vehicle to their personal tastes and needs.
Whether it’s tinting windows, installing aftermarket wheels, or upgrading audio systems, the freedom to make cosmetic and performance tweaks is very appealing.
However, any modifications or excessive wear is strictly prohibited when leasing a vehicle.
The car must be returned in its original, pristine condition at lease-end (excluding normal wear and tear).
So installing accessories like running boards, roof racks, trailer hitches, or any other custom mods is completely off-limits when leasing.
And good luck getting approval to do things like window tinting or plasti-dipping.
In contrast, when you purchase a car, it’s yours to modify as you see fit. Customize the interior, upgrade the sound system, change the wheels or suspension – the choice is yours as the owner.
This flexibility adds to the enjoyment and personalization of your vehicle.
8. You’re Still Responsible for Maintenance and Repair Costs with US Leases
A common misconception is that leasing a new car means being free of any major maintenance or repair costs during the lease term. However, this is simply not true in the case of most leases in America.
As the lessee, you remain fully responsible for adhering to the scheduled maintenance requirements and covering any repair costs that arise – just as you would if you owned the vehicle outright.
The only exception is manufacturer warranties that cover certain defects or repairs during the earlier years of ownership.
But routine maintenance like oil changes, tire rotations, brake jobs, etc. all fall squarely on your shoulders and out of your own pocket when leasing.
What’s more, you don’t have the flexibility with a leased car to have maintenance or repair work done wherever you please.
Most leases mandate all service be performed at an authorized dealership service center using OEM parts – which can drive up costs significantly.
Whereas when you own the vehicle, you have the choice to go to an independent mechanic, use aftermarket parts, or even do some repairs and maintenance yourself if capable.
9. You Still Need to Pay for Registration and Roadside Assistance with Leased Cars in America
Two more fees that leasing doesn’t absolve you from are vehicle registration costs and potential roadside assistance plan charges.
Despite not owning the car, you’re still responsible for paying:
- Annual registration/renewal fees just like a buyer
- Personal property taxes on the vehicle’s value in some states
- Separate roadside/emergency assistance membership if not included
These ancillary costs can easily add $500-800 or more over a typical 3-year lease term that you have to budget for. When purchasing a vehicle outright, these fees are usually just a one-time upfront cost when registering the new-to-you car.
10. If Your Leased Car is Totaled, Your Lease Terms Remain the Same in the USA
Finally, one of the biggest risks and drawbacks of leasing comes into play if your leased vehicle is ever in a total loss accident.
While you’d think getting into a wreck wouldn’t be as big of a hit since you don’t own the car anyway, think again.
With a standard car lease agreement, if your vehicle gets totaled, you remain responsible for honoring the full remaining term and payments of the lease contract.
The only difference is the leasing company will cut you a check for the car’s residual value to apply towards those costs.
However, this residual check rarely covers the full remaining lease payments.
You’ll likely still owe a sizable lump sum out of pocket to settle the old lease, plus need to restart payments on a brand new lease for your replacement vehicle.
It’s a costly double whammy.
In contrast, if a car you own outright gets totaled, you simply take the insurance payout and move on no further obligations or penalties to deal with.
This added risk exposure makes leasing far less advantageous from a consumer protection standpoint.
Leasing vs Buying a Car in the United States – Which is Better?
Now that we’ve thoroughly explored the various pros and cons, let’s directly contrast the two paths leasing versus buying a new or used vehicle. As you’ll see, the bang-for-your-buck math heavily favors purchasing when it comes to long-term ownership costs and flexibility for most drivers.
Advantages of Leasing:
- Lower monthly payments compared to financing
- Always have a new vehicle under warranty
- No hassle of selling/trading later on
- Potentially easier to swap for a new car every few years
Disadvantages of Leasing:
- Never build any equity or ownership stake
- Locked into long-term contract with penalties to terminate early
- Mileage limits and wear/tear restrictions
- Pay more in full interest/”rent charges”
- Still responsible for maintenance, registration, taxes
- Can’t customize or modify the vehicle
- Financial risk if vehicle gets totaled
- Limited flexibility as personal/family needs change
Advantages of Buying:
- Build equity towards full ownership over time
- No mileage penalties or wear restrictions
- Modify, customize, and maintain as you wish
- Sell or trade in at any time to recoup costs
- Lower overall costs in the long run
- More flexibility as life situations change
Disadvantages of Buying:
- Higher monthly payments compared to leasing
- Responsible for maintenance, repairs, registrations
- Up-front costs like down payments, taxes, fees
- Hassle of selling or trading in later on
As you can see, the “cons” of leasing severely outweigh the relatively minor “pros” for most typical consumer needs.
Unless your top priorities are always having a new car under warranty and keeping monthly transportations costs as low as possible in the short-term, buying is simply the better overall value proposition.
Let’s put some real numbers to this leasing versus buying comparison. Say you’re looking at a $30,000 midsize sedan and keep it for 6 years:
Leasing Scenario:
- $3,000 down
- $279/month for 36 months
- Then start new $279 lease
- Total 6-Year Cost: ~$22,000
Buying Scenario:
- $3,000 down
- Finance $27,000 at 4.9% for 6 years = $490/month
- Total 6-Year Cost: ~$32,000
As this example illustrates, while buying does have higher monthly payments, the total long-term ownership costs of purchasing can potentially be much lower than constantly leasing and never building equity.
And that’s before considering the additional flexibility, customization ability, and avoidance of mileage/wear constraints that come with buying.
So for cost-conscious Americans looking to maximize their transportation dollars over 5+ years of ownership, purchasing is the mathematically smarter decision in most cases.
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What to Do Instead of Getting a Lease in America
If the perpetual cycle of leasing doesn’t make sense for your lifestyle or budget, what are some smart alternatives to consider?
The best option for many is to simply purchase a lightly used or certified pre-owned (CPO) vehicle instead of a brand-new one.
By letting someone else eat the first 1-3 years of depreciation, you can get a like-new, low-mileage car at a steep discount compared to its original MSRP sticker price.
CPO vehicles from franchised dealers also come with extended warranties and added consumer protections compared to regular used cars.
So you get peace of mind similar to a new car lease or purchase, but at a much better overall value.
As an example, let’s look at the cash costs of leasing that $30,000 midsize sedan versus purchasing a low-mileage certified pre-owned version:
New Car Lease:
- $3,000 down payment
- $279 x 36 months = $10,044
- Total 3-Year Cost: $13,044
Certified Pre-Owned Purchase:
- $22,000 selling price for 2-year-old CPO model
- $2,500 down payment
- Finance $19,500 at 4.9% for 4 years = $435/month
- Total 4-Year Cost: $23,180
In this scenario, buying the CPO car does require higher monthly payments upfront.
However, after 4 years you’d own the vehicle outright having spent only $10,000 more than the 3-year lease.
At that point, you could continue driving for years without any further costs besides basic maintenance.
Meanwhile, the lessee would have already spent over $13,000 with zero ownership at the end and need to start over with another lease, buying out the residual value, or purchasing a brand new vehicle entirely.
So while the CPO purchase has higher short-term monthly costs, the long-term affordability and value equation quickly flips in favor of buying over leasing for those keeping vehicles longer than a few years.
What Should You Do If You Already Have a Lease in the US?
For those who have already signed on the dotted line and are currently stuck in an unfavorable lease agreement, don’t fret – there are still some smart strategies to consider:
See the Lease Through to Completion
If you’re fairly early on in the lease with significant remaining payments and potential early termination penalties, it may make the most sense to simply ride out the remainder of the contract.
This avoids paying expensive fees just to get out early.
Purchase the Leased Vehicle at End of Term
When the lease ends, take a hard look at purchasing the car by paying the predetermined residual value if it fits your needs and budget.
This route allows you to finally build equity in a vehicle you’re already familiar with.
Return It and Buy/Finance Your Next Ride
However, if purchasing the leased car doesn’t make sense, make sure to return it in excellent condition and shop to purchase an affordable used or CPO vehicle for your next form of transportation. Avoid falling into the lease cycle again.
Whichever path you take, the key is to minimize long-term leasing as much as possible going forward if the numbers don’t make sense for your driving needs and car ownership timeline.
Final Thoughts on Leasing a Car in America
For the overwhelming majority of American consumers, leasing a new vehicle makes little financial sense compared to purchasing – whether that’s financing a new car or simply buying a late-model used one outright.
The temporary benefits of lower monthly payments and always having a new car under warranty get outweighed by:
- Excessively high overall costs long-term
- Never building ownership equity
- Restrictive mileage limits and wear constraints
- Lack of flexibility and customization
- Difficulty swapping vehicles as life situations change
Simply put, leasing often equates to perpetually throwing money out the window towards a depreciating asset you’ll never fully own.
The dollars never stop flowing out; even for a car you may only have for a couple years.
