Why do People Lease Cars Instead of Buying Them?

There are plenty of reasons why people lease cars or prefer to lease cars instead of buying them. In the past decade or so, car leasing has actually become a popular way to drive a brand new vehicle for several years without the burden of owning it. In fact, according to the Bureau of Transportation Statistics, car leases made up approximately 20 percent of the total vehicles sold and leased in 2010. What follows are several reasons why people lease cars instead of buying them.

Leasing a car costs less than buying or financing a car. If you are looking for lower monthly payments, leasing a car is the way to go. The reason why leasing a car costs much less than financing a car is pretty simple. When you lease a car, what makes up the most sizable portion of your monthly payment is the difference between the selling price of the car and its value at the end of the lease. This difference is called the “depreciation” and what you pay as a result of this difference is called the “depreciation fee.” However, when you finance a new car, you are paying for the entire agreed upon value of the vehicle over a specific number of years, which generally leads to higher monthly payments when compared to lease payments.

Leasing a car helps build or improve credit. Some people view leasing a car as an effective means to build their credit or to even improve their credit if they have suffered from credit problems in the past. One of the factors that affect your credit rating is types of credit that you have used. In fact, 10 percent of your FICO credit score is determined by the types of credit you are using now and that you have used in the past. Therefore, by using different types of credit, you can help build or improve your credit score.

Leasing allows people to drive new cars every few years. Some people do not want to be permanently attached to their cars. By leasing cars instead of buying them cash or financing them, they can simply return their cars to the dealership at the end of the lease term and subsequently lease another car that they like. This is one major reason why leasing is quite popular for luxury cars. Since many luxury car drivers may get tired of driving the same car, they tend to lease their cars so that they can choose a new luxury vehicle once every few years.