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Leasing a car may not be top-of-mind for an older person, but it can be a better option than buying a new car for some. Older adults on fixed incomes who want to drive a new car with the latest safety features every couple of years or who want a shorter financial commitment to their car could benefit from leasing rather than the long-term commitment of buying.
6 benefits of leasing
There are several benefits that older people should consider when deciding if leasing a vehicle is the right choice for them.
1. Lower monthly payment
Leasing a vehicle typically requires a lower monthly payment and lower upfront costs than buying a vehicle. The monthly payments are lower because when you lease, you’re only paying a percentage of the total price of the car.
“Although the price gap from leasing to buying has significantly narrowed in recent years…the monthly payment should be less expensive than buying a car,” says Ronald Montoya, senior consumer advice editor for Edmunds.
The overall ownership costs throughout the lease may also be lower due to the car being under factory warranty. Essentially, the primary costs an older adult needs to think about with a leased car include whether the lease payment will be affordable, gas costs and the expenses related to car insurance. The average monthly lease payment is $586, according to Experian.
While the monthly payments may be lower, unless you choose to buy the car at the end of the lease term, there will always be car payments for those who continue to go from one lease to another. This can be challenging for individuals who no longer have a regular paycheck coming in.
When budgeting for a lease, keep in mind that while monthly payments may be less costly, lease agreements include extra fees and expenses such as fees for exceeding mileage limits, which can be an issue if you plan to do a great deal of traveling or road tripping.
2. Option to buy
Regardless of whether a car is secured directly from a dealer, or an older person takes over a car lease for the remainder of the term, lessees have the option to buy the car at the end of the term for the amount stated on the contract.
When considering whether to buy, it’s important to consider the leased car as if you were shopping for a used car. Find out whether the car is priced similarly to other cars of the same make and model in the same condition and with similar mileage. If this is the case, then it may be a good financial choice to buy.
Keep in mind that the costs of ownership will go up once the lease ends because the vehicle will no longer be under the same type of warranty. The cost of repairs and maintenance will now be the owner’s responsibility.
3. Tax deductions
Older adults who choose to lease a vehicle and who are still working part-time while in retirement may benefit from tax deductions. This information can be checked ahead of time through the Internal Revenue Service.
By using the vehicle for work, older adult drivers may be able to deduct a portion of the lease payment on tax returns, as well as the cost of vehicle upkeep and the vehicle’s depreciation.
This tax deduction benefit is only available for drivers who are leasing a vehicle while in semi-retirement and still working in some capacity but is something to consider.
4. Latest models
A major benefit of leasing vehicles is the ability to get behind the wheel of the newest vehicles available on the market.
The technology available in vehicles is constantly changing and ensures a much safer drive than in the past. For older people, the added security of the newest features, like rearview cameras, parking assist and lane departure warnings, can be very valuable.
Those who continue to lease for the long term, cycling from one lease to the next, will always have the latest technology and safety features in the vehicles you’re driving.
5. Vehicle warranty protection
A leased vehicle will have warranty protection on it. This means any expected repairs that the vehicle will need are covered and will not come out of your pocket.
“With a leased vehicle, you never have to worry about any out-of-warranty repairs, since the car will have its factory warranty for the entire duration of the lease,” says Montoya.
Warranty coverage like this can be very valuable for older individuals, especially those who may be on a limited budget, as it eliminates much of the financial uncertainty or guesswork associated with vehicle ownership. Drivers will, however, typically have to pay for minor maintenance such as oil changes and tire rotations.
Since a lease is typically for three years or less and a car loan is usually for five years or more, leasing can provide more flexibility for those who are unsure how much driving they will be doing in the coming years.
It may be easier for a retiree to predict their driving requirements just a couple of years into the future — but it might be more difficult to predict driving needs over five years, because those needs could change much more dramatically.
Tips for getting the best deal
Before signing on to a lease, make sure you’re getting the best deal possible. Here are a few tips for doing that.
Negotiate the car price
To get the best deal on a car lease, try to negotiate the car price on your own, just as if you were buying the vehicle. Negotiating the selling price is important because it is a key factor in calculating the car lease payment. Before you try to negotiate, however, make sure to use Kelley Blue Book to better understand market pricing and whether you are getting the best deal.
Look for pre-negotiated prices
Another approach is to use a service that offers pre-negotiated prices. Organizations such as AAA (American Automobile Association), Costco and TrueCar offer these services, or you can go through a local bank.
Get only what you need
A variety of other factors affect the cost of lease payments, including the residual value of the car, the length of the lease and the mileage limits. When contemplating a lease be careful to only obtain a lease that has a large enough mileage allowance to avoid excess mileage charges. Also aim to pay no more than $1,000 in fees associated with obtaining the lease, commonly called “drive-off” fees.
Another method of leasing a car is taking over the lease from someone who is looking to get out of their lease early. A lease takeover eliminates the need to negotiate the car lease and a down payment with a dealer, since those steps have already been completed by the initial lessee. It’s just a matter of finding a takeover deal on a car that you might want and one that has an affordable monthly payment.
“There are websites that assist with swapping your lease to another owner,” says Montoya. “But lease swaps are not available for all brands.”
The lease marketplace SwapALease, for instance, provides a platform where lessees can offer their lease for takeover and car shoppers can peruse available cars. But it is important to pay close attention to the number of miles remaining and the length of time left on the lease to ensure that the lease will meet your needs.
The bottom line
Leasing a car instead of buying can be a good option for older drivers, depending on your budget and how you plan to use the vehicle. But weigh the pros and cons of leasing before signing on the dotted line. Unless you plan to purchase the vehicle at the end of the lease term, you could be setting yourself up for never ending car payments. If you plan to proceed with a lease, research market prices of the vehicle you’re interested in so that you can negotiate the best deal possible.