Leasing a Car Is Not Like Renting It

A colleague of mine has seen me throwing away a lot of paper over the past couple of years, and I explained that I’m trying to live a life with fewer things. The way I see it, my possessions tend to own me rather than the other way around. This colleague recently told me that I inspired him to do the same thing, and he began by leasing instead of buying his most recent car. He sees leasing as like renting instead of owning.

The social thing to do in this situation would be to say something like “that’s great – enjoy your new car.” But, I’m no good at saying things I don’t believe. I had to tell him that I didn’t agree that leasing a car is like renting it. For one thing you often end up paying for about half of the car. Further, the details of lease contracts push much of the risk back onto the consumer.

This colleague really hasn’t significantly reduced his exposure to the risks of owning a car. Further, because lease contracts are complex, few people understand them enough to figure out if they’re getting a good deal or not. If you believe that car dealerships don’t take advantage of this asymmetry of understanding, I’ve got a nice bridge I’d like to sell you.

The main thing that consumers see is that lease payments tend to be lower than car loan payments. However, at the end of the lease, the consumer has no equity and may be on the hook for extra charges depending on the car’s mileage and other factors.

So, leasing a car is not really like renting. Most people would be better off to save up for a car and buy what they can with their savings, even if it means buying a very modest used car.