Leasing a car: What are the pros and cons?

Jun 29, 2020 | Same topic: Best Advice for Car Buyers
Car leasing certainly sounds like an attractive proposition.   

When it comes to acquiring a car in the Philippines, we’re familiar with two options: outright cash transactions and paying through financing. Completing either one gets you your very own pride and joy.

However, not every car is a keeper. When problems start to come up after a few years or you just want to dispose of the car and get a new one, it can be difficult to sell the car off right away. 

car buying and leasing

Car leasing is a consumer option that has landed in the Philippines

This brings us to the third option: car lease. It’s a common practice in developed countries, giving consumers the opportunity to drive a new model without having to worry about resale value down the line. 

At least one car brand is already introducing the concept to Filipino car buyers, giving the local market more flexibility in being able to drive a brand-new car.

At its core, car leasing is a financial agreement between the customer and the car dealer, where the former uses the vehicle for a fixed period of time in exchange for a specified sum.

It’s commonly offered as an alternative to outright vehicle purchases, especially for fleet accounts. Compared to simply buying the car at the showroom, car leasing offers a number of advantages.

>>> Related: Car leasing in the Philippines: All about its Pros & Cons

The best driving years ahead

Since you get the car brand-new, reliability and performance are expected to be at their best the moment you drive it off the dealership. There’s peace of mind knowing that you have a fresh model on your hands, one that’s not likely to exhibit issues for the first few years on the road.

for lease cars

You get to drive a brand-new car in pristine condition with years of reliability ahead of it  

And even if it does, the car comes complete with the manufacturer’s warranty, as well as periodic maintenance servicing to ensure it runs smoothly.

You get your preferred features

Car leasing lets you pick that well-equipped model or trim that you wouldn’t otherwise be able to afford by cash or financing. When you want to spruce up a variant that has a rather spartan feature set, extra options often carry a premium. The ability to drive off with a model that has all the bells and whistles is a huge plus.

>>> Related: 6 things every Pinoy car owner should follow to keep your car resale value higher

No worries about market value

Whether bought with cash or financing, brand-new vehicles typically lose as much as 20 percent of their initial market value the moment they’re driven off the dealership.

It’s called depreciation, one of those realities that car owners have to deal with. Car leasing does away with that, since there would be no need for you to actually sell or trade the vehicle once the lease has run its course.

car lease

Depreciation isn't a problem when you're just leasing the car

And unlike monthly amortization that’s based on the car’s full market price, lease payments are based on the vehicle’s depreciated pricing.

A new car every two or three years

As mentioned, it can be such a bother trying to sell off a car after you've used up its best years. With car leasing, there are no documents to set aside, or even haggling with potential buyers just to get the best possible price.  

car lease

It's easy to smile when you can effortlessly change cars

Simply drive it back to the dealer when you’re done, and pick out a newer model. Imagine being able to do that periodically. Quite a convenient way to hop from one car to another, like when you’ve grown tired of your sports coupe and want an SUV instead.      

But as attractive as the benefits may sound, there are also other things to consider when going for car leasing.

>>> Related: For car sellers: How to detail a car before getting it sold

Higher costs

Getting a lease on a specific model might cost more than just saving up the cash or taking out a loan over the long term, especially since cars are depreciating assets by nature.

car for lease

You might end up spending the same (if not more) on a leased car than if you took out a loan

There are plenty of fees that are included in leasing a car, including downpayments, security and license fees, default charges if you miss you scheduled payments, and wear-and-tear charges if the vehicle's maintenance is neglected.

>>> Related: The 4 'Whys' of Car Maintenance That You Must Know

Lease amount is the same no matter what

That sounds good at first, until you realize that you’ll still be paying the full lease contract amount even if you get into an accident and the car ends up a total wreck.

BMW wreck

Not even an accident exempts you from paying the full lease contract amount

The insurance company will likely just give you the cash equivalent of the car’s fair market value prior to the incident, but this still won’t be enough to compensate the dealer on what you owe, and you’ll have to shoulder the balance.

Stable income needed

Since leasing doesn’t have a principal amount to pay off unlike a loan, overall financing costs tend to be higher. This means that the dealer needs to be assured that you have the funds necessary to meet the monthly obligations for the duration of the lease contract.

Also, if you tend to lease one car after another, it’s going to be a never-ending stream of monthly payments without a single car to show for it in your garage.  

Fixed mileage allowance

Lease terms typically specify a certain annual mileage for the car while the agreement is in force.

leasing a car

Lease agreements limit your mileage in a given year

If you decide to get even the highest mileage allocation, yet exceed that in actual use, you’ll need to fork over additional fees depending on how many kilometers you’ve exceeded on your lease plan. And no, unused mileage doesn’t entitle you to any discount or rebate.

>>> Related: Will buying a car that used to be a rental car be a good idea?

No opting out just yet

Like any financial agreement, a lease is a binding contract. If you wish to get out of the deal for any reason, you’re looking at early termination fees and penalties which might be immediately payable in full. Added all together, you might end up with the same amount of the entire lease term.

Keep it stock

Car leasing hardly gives you any leeway to be creative or expressive with the vehicle.

car on lease

You're not allowed to dress up the vehicle while the lease is in force

At the end of the lease term, you’re expected to return the car to the dealer in the same condition as when you got it – in stock form or as close to the original configuration as possible.

With a few exceptions such as window tints, that means no aftermarket wheels, body kits, accessories, or engine modifications.

Get more car-buying tips at Philkotse.com.

Author

Joseph Paolo Estabillo

Joseph has been on the LTO's records since 2004. Old enough to remember riding in taxicabs with analog meters. Keeping his hopes high and his revs low, he dreams about owning a Kei car when he retires. Hates slow parkers.