The world economy is experiencing a turbulent time. In fact, the pandemic years have affected the economy in a very negative way. Many people have lost their jobs as the companies looked to cut down their expenses. Moreover, some small businesses had to pull down their shutters due to a lack of proper funds. Therefore, the economic condition of the standard population has become problematic. In such a scenario, one might consider leasing a car rather than buying one.
Leasing a car may be a good idea, considering that you would not have to pay the entire price of the car. You can use a leased vehicle for a fixed period of time, by paying an agreed amount of money. In fact, after the primary term for the lease is over, you may either return the car to the leasing company, or you may choose to buy the car by paying the residual amount.
All these might lead you to think that leasing a car is a great idea. However, financially this is rarely a great idea. In fact, in 2022 the idea of using a leased car might prove to be a particularly bad idea. Read the article to know more about the reasons for such a claim.
The Payment Scenario is Changing
We know that the present time is a really bad one to buy a car. This is because at present you might have to pay more than the sticker price to get the car of your choice. However, the present time is the worst one for the idea of leasing a car. In fact, the vice president of data and analytics at J.D. Power, Tyson Jominy suggests that it is the worst possible time for leasing. Well, that seems a wise comment.
Previously, the main driving force behind leasing cars was the lower monthly payments. In fact, this was the main reason why people thought of leasing a car, rather than buying one. However, this equation is slowly changing. Previously, computer chips were readily available. As a result, car leasing offered proper incentives to the customers.
However, at present, such incentives are getting less day by day. This is due to the drop in fleet supply. J.D. Power states that in the pre-pandemic era, the leasing companies offered incentives of around $4,000 on average. Therefore, this is one of the reasons behind considering the present time as a bad one to lease a car.
Also read: 7 Things You Should Look for in a Quality Used Car
Leasing a Car: The Issue of Depreciation
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Depreciation may be seen simply as the difference between the value of a car when you buy it and when you come to sell it. Usually, the value of used cars decreases over time. However, at present, there is a shortage of buyable cars. As a result, the value of used cars has increased rapidly. For instance, the price of an American-made car has increased by around 30% this year.
One might think that since there is less depreciation, the leasing companies will lower the leasing amounts. However, the leasing companies are not thinking in the same line. They are also decreasing the incentives. Therefore, this is yet another reason for not leasing a car at the present time.
Leasing A Car is A Bad Idea
It is a common fact that audio-visual content is more easily understood than written words. Therefore, follow the link below to watch a video. In this video Ari Janessian, an auto broker with Negotiation Guides will provide a detailed breakdown of the numbers of 2022 Toyota RAV 4 that were bought versus those which were leased:
The RAV 4 has an MSRP of $35,000, excluding fees and taxes. Adding Toyota’s insurance at 2.79% interest, and taxes and fees, the monthly payment becomes $621. This will ultimately take the total cost to around $37,260. Assuming a 40% deprecation, the value of the RAV after five years will be around $21,000. Therefore, following these figures the cost of ownership for five years should be $16,260.
However, if you lease a RAV 4 for 3 years and add the taxes and fees, you have to pay around $471 a month. In this way, your lease for three years will cost around $16,956 excluding taxes and fees. Therefore, if you buy a RAV 4 you will be gaining a great way. While leasing the car will see you spend much more. Now, the cost, deprecation rates, fees and taxes vary with different cars. But the trend remains the same.
Concluding Lines
Those who have leased a car before 2019, have done a great job. At that time, leasing was a better option. However, be sure not to return the car after the lease is over. The average value of a 2019 vehicle is $7,208 more than the projected residual value. Therefore, if you buy the car at the end of the lease, then that would be an absolute steal.
But now, leasing a car is never a worthy option. In fact, this bad period of leasing will last longer than excepted. There is no surety when the shortage of cars will end. However, the shortage of computer chips is coming down. Moreover, the automobile stocks are getting replenished slowly. However, there is a huge backlog of consumer demand. Therefore, the industry analysts suggest that the scarcity of cars will continue till the end of 2022.
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