Should retirees consider leasing over buying?
Finding new ways to save money in retirement is rarely a straightforward process, but that doesn't mean there aren't a few shortcuts that retirees can try to locate. While most people have heard that buying a car offers a better investment for drivers than leasing a vehicle, that might not be the case for retirees. USA Today reported leasing enables retirees to keep more of their money in savings accounts compared to buying because signing a lease has much lower upfront costs. Monthly lease payments are also usually less than the monthly fees associated with loans.
Scot Hall, vice president for Swapalease, which is a company that specializes in helping drivers get out of their leases early, told USA Today there are some definitive benefits to leasing for older drivers.
"Leasing takes all the guesswork and surprises out of your cost," he said. "All the benefits of leasing apply even more to that older demographic."
One huge reason why leasing might be a wiser investment for retirees is because they don't have to lose sleep over any potential repairs. Nearly all of a vehicle's routine maintenance and repair costs are covered by the car's warranty.
Bankrate reported a senior who leases a car will only have to worry about the lease payment, gas costs and car insurance.
"For someone on a fixed income, it can be very easy to budget for," Phil Reed, a senior consumer advice editor with Edmunds.com, told Bankrate. "If the monthly payments fit your savings or income, no other additional expenses will arise."
Understanding the terms of a lease
Reed said coming to grips with all the lingo associated with a lease can be difficult for some car shoppers because it's often much different than language used in the buying process.
"Many older people, my parents included, are suspicious of leasing, mainly because they don't understand it," Reed said.
Bankrate reported this is an obstacle keeping some senior citizens from leasing because the contract can be difficult to understand. Two terms the source said are difficult to comprehend include capital cost and residual value. The capital cost of a vehicle is the actual sale price of the car, where the residual value is the car's expected value at the end of a lease agreement.
Kiplinger reported leasing can be a smart idea for those who like luxury automobiles, because the price of leasing an expensive car on a month-to-month basis is cheaper than a monthly loan payment.
Reasons not to lease for retirees
While leasing can be a solid money-saving option for many people in their post-employment years, leasing a vehicle isn't the best idea for everyone.
For example, drivers who don't put many miles on their vehicle might want to consider avoiding a lease term. That's because leases are usually based on a driver putting an average of 12,000 miles per year on car. If a motorist is only putting on 3,000 or 4,000 miles, they aren't getting the full value out of the lease.
"The only disadvantage for leasing would be some of the older people we have really don't do much but drive around town (or) go out of town anymore, and they only put on 4,000 or 5,000 miles a year," Mike Money, owner of a Subaru dealership in Kansas, told USA Today.
The same is true for the exact opposite: drivers who plan to put a ton of miles on their car.
Drivers who take long road trips should carefully examine their lease so they don't go over any mileage constraints, which can be costly.
"It's also best not to sign a lease for more than three years so the car will remain under the factory warranty," Reed said.
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