Although the history of car leasing in the United States goes back to the 1960s, drivers in San Diego did not become aware of it until the 1980s. Vehicle leasing was born from a business proposal by a clever sales manager who wished to move a new and sporty Chevy Impala off the lot. The prospective buyer was about $500 short, and thus the dealership suggested a lease deal calculated on the residual value of the vehicle. That particular deal fell through due to a disagreement on the monthly payments. Nonetheless, leasing became an attractive option for companies that relied on vehicle fleets for their operations, and two decades later they became available for personal car financing.
These days, leasing accounts for nearly 30 percent of the auto financing market, and dealers are known to heavily market lease options and lower monthly payments. The prospect of saving a few bucks each month may sound enticing to many people, but the reality of leasing suggests that not all drivers will benefit from it. Here are five disadvantages of vehicle leasing that you may not be aware of.
1. Dealers May Try to Pad the Contract for Greater Profit
If you are an experienced car buyer, you know dealers are always looking for ways to maximize their profits. It so happens that dealerships have more profit opportunities with leasing than with regular financing and cash purchases. Lease contracts are often complex affairs that even seasoned buyers may not be able to fully understand. When a salesperson starts pushing lease options aggressively, there is a strong chance the dealership is trying to pad the contract.
2. You Can’t Terminate the Contract
Purchasing a car means being able to sell it even if you have not finished paying off the loan. This is not the case with most lease agreements, which require paying in full even if you are no longer interested in the car.
3. Your Credit Score and History May Prohibit You from Leasing
Leasing is generally off limits to drivers whose credit scores are low or who have a blemish on their credit histories.
4. The Cost of Insurance Is Higher
The National City car insurance coverage required by the financial entity handling the lease contract will be much higher than the coverage required by state law. For example, in California liability coverage is a minimum of $30,000 per accident and $15,000 for each person. It is not unusual for leasing entities to require $300,000 worth of liability coverage since they will be listed as the owners of the vehicle. Even if you are used to paying for full coverage policies, you may get sticker shock with a lease deal, especially if you are leasing a luxury vehicle.
5. There Are Hidden Fees
If you think buying a car results in too many unexpected fees that significantly increase the final sales price, you will be unpleasantly surprised to learn about acquisition and disposition fees related to lease contracts. You may also find the wear and tear fees are unreasonable.
Whether you’re leasing a car or buying it, make sure you have adequate insurance to protect you in the case of an accident. At American Tri-Star, we can help you find the right policy to meet your individual needs. In addition to affordable and reliable auto insurance, we also offer commercial, health, RV, and property insurance in National City. To speak with one of our friendly representatives and receive a free quote, call 619-474-3600 today.