If you Google the phrase “buying a car” right now, a few recent news articles will pop up, with headlines along the lines of “expert tips for buying a car in today’s chaotic market” and “why buying a car is nuts right now.” One CNBC article headline lays it all out: “buying a new car is a challenge amid a global chip shortage and limited inventory.” So, if you’re searching for a used or new car and not having any luck, let this be the evidence that you are not alone. It’s a challenging market right now and if you’re in need of a vehicle during this time, it is confusing to navigate, particularly when it’s a significant financial decision.
We’ve talked on the blog before about why purchasing a new car might not be the best choice, but even purchasing a used car in this market is challenging. So, is this the right time for you to lease a car? We’ll go over some specifics today about the pros and cons of leasing versus buying, along with some information on the current market — you’ll see a microchip shortage is causing a lot of issues within the vehicle industry — so you can make an informed decision as you look for your next vehicle.
The current situation and why car prices are on the rise
The supply chain is currently disrupted in many areas, from toilet paper to restaurant supplies. Among the global shortages are microchips, necessary equipment for today’s cars to operate. This means that production of new vehicles has slowed down, and demand is higher than supply for both used and new cars. This is a big factor pointing to why exactly things are nuts right now in the car market — and why it might be a great time to consider leasing a car, even if it’s something you haven’t considered previously.
What does it mean to lease a car?
When you lease a car, it’s important to understand you are not purchasing anything. You lease a vehicle for an agreed upon timeframe (often a three- or four-year contract) for a set monthly payment. Some leases give you the option to purchase the vehicle at the end of the lease, but with many leases, you just lease a new car once one lease expires. One simple comparison is to think of it like the difference between renting versus buying a home.
What financial experts say about leasing a car
As you’ll see on its website, The Federal Trade Commission is a great resource to understand the financial differences between financing and leasing a car. The FTC says, “The monthly payments on a lease are usually lower than monthly finance payments if you bought the same car. With a lease, you’re paying to drive the car, not to buy it. That means you’re paying for the car’s expected depreciation — or loss of value — during the lease period, plus a rent charge, taxes, and fees. At the end of a lease, you have to return the car unless the lease agreement lets you buy it.” Before deciding, the FTC says to consider both how much you drive (are your driving habits in line with the annual mileage limit of the lease?) and the exact leasing terms.
Why people lease
One of the big benefits of leasing a car is mentioned above — the monthly payment on a lease is typically lower than a monthly finance payment would be. Because of this lower cost, a lease might mean that you can drive a more expensive or luxurious vehicle than you could afford if you were to purchase a new or used vehicle. If you’re not a fan of keeping up with car maintenance, leasing a car might be music to your ears. As leased cars are often newer, they typically have fewer maintenance problems — and when issues arise, they are covered by warranty, so leasing takes some of the headache out of maintaining a car that you know will be with you for the long haul. That said, there are a few things to consider before leasing a car, from mileage caps to upfront costs to the different types of car leases. This is certainly a situation where you will want to read the fine print.
Why buying is (usually) better
The big benefit of buying a new or used car is the long-term financial benefit. At the end of financing a used or new car, you drive away with something that is yours — and every month you have the car and pay your monthly payment, you are working toward owning something of significant value. Again, think about the comparisons of renting versus buying a home. Each option has its pros and cons, but with one option, you end up with a car or house that you own.
Due mainly to the microchip shortage we talked about earlier, the cost of new and used cars has gone up significantly in recent months. According to Kelley Blue Book, the advertised price for the average used car in America rose to $25,500 at the end of July. Even the cost for totaled used cars is increasing, which is crazy to think about. These financial changes mean that it could be most cost effective to lease if you’re in need of a vehicle right now.
How to determine whether you should lease or still look to buy
As you consider whether you should still look to buy or if leasing might be right for you, think about your budget, the type of car you want, and how often you drive. You might be able to compare a used or new car at the dealership to a leased car to see what you can get for a similar or lower monthly payment and then consider if a leased car might fit with your lifestyle, especially if you are driving less due to working remotely. Another thing to consider is that because most leases are just for a few years, even if you choose to lease a car now due to the changes in the market and the microchip shortage, you can still return to your old ways and buy a used or new vehicle once your lease ends. One of the great things about a lease is that you are not signing up for anything long-term!
Leasing Right Now: why it might be worth it
We want you to make the decision that is best for you — but it’s fair to say that making the decision to lease a car is a better bet than it used to be, given the current environment.
Decide which car is best for you – and then get a quote from Elephant
Whatever you decide to do for your next vehicle purchase, we hope you’ll find the best option for you whether it’s through leasing or buying a new or used vehicle. Once you’ve decided on your new set of wheels, consider getting a quote today for car insurance from Elephant. If you’re not quite ready to get a quote, consider using our coverage wizard tool, where you can answer a few simple questions and we can give you some guidance on what coverage might be best for you.
Here’s to safe driving and lots of luck as you face the crazy vehicle market right now.
Article last updated on October 27th, 2023 at 1:56 pm