It's a bad time to buy a new car if you can't find one you want. It is a bad time to lease a new car. Tyson Jominy, vice president of data and analytics at J.D. Power, told him that it was a poor time to lease.
Lower monthly payments for leased cars used to be one of the main selling points for those considering buying, but that math has changed. The drop in fleet supply caused by global supply chain issues has led to a decrease in incentives offered by car leasing companies. According to J.D. Power, the average leasing company now offers around $1,500 in incentives, down from $4,000 in pre-pandemic times. There are other reasons you shouldn't lease right now.
The number of miles customers can drive without penalties is being cut back by car leasing companies. The industry standard a few years ago was 12,000 miles per year, but now many lease are offering only 10,000. If you go over your limit, even if only for the previous mile maximum, you will be charged around 30 cents a mile, which will add 600 bucks to the price of a lease that was already more expensive than it would have been a few years back.
The current shortage of buyable cars has caused the value of used cars to go up, the price of an American-made car from the last five years is around 30% higher than it was a year ago. You would think that less depreciation would result in cheaper lease payments, but the leasing companies don't have a lot of incentive to start.
The video from Ari Janessian, an auto broker with Negotiation Guides, breaks down the numbers for leasing versus buying a 2022 Toyota RAV 4, and it becomes clear just how bad it is.
Fees and taxes are included in the price of the RAV 4. If you financed at Toyota's 2.49% interest and only put down taxes and fees, you would have a monthly payment of $621, resulting in a total cost of $37,260. The total cost of ownership for the five year period would be around $16,000, assuming a 40% deprecation on the open market.
You would be paying $471 a month if you leased a RAV 4 for 36 months and put down only taxes and fees. You would have to return or buy out the lease if you leased the RAV 4 for three years.
You can either drive a car for five years if you finance it, or three years if you lease.
Different cars have different resale values and finance rates and incentives are different, so these numbers won't apply across the board, but the trend is clear.
You have leased a car in 2019. You made the right decision. If you buy your car when your lease is up, it will be more expensive than the average value of a car in 2019. Some people are selling their leases for a profit because of the price difference.
There is no idea how long the shortage of cars will last. While the computer chip shortage is starting to ease and automobile stocks are gradually filling out, a backlog of consumer demand will likely keep cars scarce on the lots until the end of 2022, according to industry analysts.
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