Undecided on whether to buy or lease? The surplus of used vehicles may help you make up your mind.

Leasing binge may slow with used car surplus

Is it better to buy or lease a car?  If you go by recent trends, the latter may seem like the better option, considering that lease volume rose more than 91% last year and accounted for nearly one-third of all new-vehicle sales, based on estimates compiled by car information website Edmunds. 

However, if your aim is affordability, new numbers suggest that buying may be the way to go, due to a plethora of used vehicles that are flooding the market.

"Used car prices are expected to fall 0.6% annually until 2020."

Over the course of the next three years, consumer spending on motor vehicles leases is anticipated to dip by slightly more than a half-percent annually, according to trend data crunched by analytics firm The Freedonia Group. The reason for the slight slide is an abundance of used vehicles up for sale, as the glut is prompting sellers to lower asking prices, thereby persuading on-the-fence buyers to take advantage of the savings while they can. 

Indeed, through the first three months of 2017 compared to the same period in 2016, used-car prices fell across numerous vehicle segments, including compact, midsize, sports-utility and even luxury automobiles, according to remarketing services firm Manheim.

Millennials leased in droves last year

Though purchasing a vehicle has been – and continues to be – the choice that most consumers gravitate toward, leasing has gained favor in recent years, particularly among millennials. According to Edmunds, slightly less than 33% of 18- to 35-year-old automotive shoppers last year chose to lease rather than buy, compared to 21% in 2011.

Jessica Caldwell, Edmunds' executive director of industry analysis, indicated that leasing continues to be an attractive option for vehicle shoppers – millennials especially – because it allows them to take advantage of the latest enhanced interior features that make the typical ride a bit more enjoyable.

Leasing also has a subscription-based model that millennials are familiar with. Jeremy Acevedo, Edmunds.com senior analyst, likened the process to paying a monthly smartphone bill.

"It is something baked into their psyche," Acevedo told MarketWatch.

But if you ask car connoisseurs, buying is the best bet. Long-time funny man and former host of "The Tonight Show" Jay Leno owns dozens of automobiles and told CNBC late last year that buying, to him, makes the most economic sense.

"I always think it's better to buy a car," Leno explained. "Everyone seems to lease now. Everyone thinks you can write off this and write off that, and to a certain extent, you can. But at the end of the lease, you don't have anything."

Of course, money isn't a concern for Leno, who the Wall Street Journal reported as earning roughly $30 million per year during his "Tonight Show" tenure. But the stand-up comic noted that he preferred buying to leasing long before he became a highly compensated public figure.

"When you don't have to write checks every month, you're just better off," Leno further stated, according to CNBC.

A surplus of used cars are expected to prompt more consumers to buy rather than lease.A surplus of used cars are expected to prompt more consumers to buy rather than lease.

Expert cautions parents against leasing 

The same goes for parents of newly licensed teenagers, according to Tom McParland, automotive expert and contributor for Jalopnik. McParland referenced how in the past, he's received a lot of negative feedback from parents who didn't have good things to say about the used vehicle purchase process, and opted instead to lease, citing the favorable interest rate environment as their reasoning. Nevertheless, because teens' circumstances may be in a state of flux, lessees often wind up paying more than they initially anticipated.

"Your son or daughter might not be driving far, but if they are taking their car to work, school and events, those miles can add up," McParland wrote. "You don't want to be put in a position where you have to pay penalties at the end of the lease because of a mileage overage."

Even teens who drive on a limited basis are ill-suited for leasing, McParland went on to say, because by not using the total number of lease miles allotted, the money spent is ultimately going to waste.

The decision of whether it's better to buy or lease a vehicle is not unlike the choice between comprehensive vs. collision auto insurance. Both policy types include coverage that is important to have in case of an accident, but some motorists may be better suited for comprehensive than standard collision because of their driving situations and where they live. For guidance on which plan is best for you, don't hesitate to contact an Elephant Auto Insurance professional for assistance.