Millennials are some of the most committed phobic people according to surveys. They have grown up with ride-sharing services, Netflix, and even monthly contract smartphones. Many consumers under the age of 35 have embraced the rental economy and in fact, prefer renting over owning. As the age group becomes more influential and increases its buying power, dealerships will need to cater to their needs.
According to LeaseCosts Canada Inc, up to 100,000 Canadians, most them millennials visit their website to find leasing deals. This just goes to show that leasing has become a very popular mode of car ownership in recent times. Most dealerships now have websites that have tools showing discounts, price changes, and interest rates. This has made it easy for prospective clients to do research and make a decision on the best car to lease.
So why has leasing become so attractive for the generation born in the early 1980s and the 1990s? For starters, leasing gives millennials one of the things they value most – flexibility. Millennials believe that their circumstances may change at any time and hence they do not want to be tied down to one car. For instance, they may need a compact car when they are young, but need to upgrade to an SUV when they start a family.
Another significant reason why car leasing is up among millennials is that the group has a lot of young people. There are persons in their twenties who may not have enough disposable income to spend on huge down payments towards owning a new vehicle. Many are just getting started on new careers while others still have college loan debt to contend with. Since lessees typically save an average of $120 every month compared to buyers, leasing becomes a very attractive option. Moreover, lessees will also spend less on maintenance and repairs, as these are typically covered by warranty.
What is Car Leasing?
Car leasing is akin to renting a house or apartment in that you will get your vehicle from the dealership for an agreed period of time for a set fee. You will typically have the choice of vehicle, model, make, and specifications such as in-car technologies, trim, and color. The contract which typically runs from two to five years is custom made for you. You get to decide the length of the contract, the estimated annual mileage, and how much you want to be paid every month.
The total cost of the lease will typically be dependent on: the length of the lease, the annual mileage allowance, the value of the car in the showroom, and the estimated residual value of the car once the lease comes to an end.
How Leasing Works
You will have to put down a deposit, which in industry jargon is known as the initial payment. For most dealerships, the initial payment will be equal to a few months of installments. You will then need to start paying fixed monthly leasing fes until the expiration of the contract. In general, you get to enjoy lower monthly epayments if you opt for longer lease periods. You can usually determine how many miles you rack up over a year by looking at recent service reports.
Once the lease expires, you will return the vehicle, have the dealership check it over and release you from the contract. If you are over the agreed mileage, you will have to pay more money usually calculated for every mile over the limit. You will also have to pay for any damage to the car that the dealer’s inspection discovers. You can typically enter into a new lease immediately after your current one ends.
Why Millennials are Increasingly Turning to Leasing
1. Best Cars for Less Cash
According to an IHS Automotive report in 2015, the most popular vehicles leased by millennials were Lexus IS, BMW 328, Mercedes C Class, Lexus RX, and the Infiniti Q50. Given that you are saving quite a lot with leasing, you can afford to upgrade the quality of your ride. In fact, you can get a late model luxury car with no down payment for as little as $300 a month. If you are strapped for cash but need a car that looks good for cheaper, then leasing is the way to go.
2. Updated Technology and Features in the Vehicle
As compared to other generations, especially the boomers, millennials are more tech savvy. Just like with their smartphones or computers, they want to use a car for a few years and then upgrade to a new one. The new SUV, truck or car is full of new gadgets and features that the model you bought last year does not have. Moreover, when you lease you will be using the vehicle for two to three years and getting a new one with even more advanced features on a new lease.
3. Renting Provides More Appeal than Owning
Monthly subscriptions have become an integral part of the millennial. They subscribe to Netflix for movies, listen to Spotify for music, put purchases on their credit cards, rent Airbnb when on vacation and use an Uber when they are out of town. Millennials are thus more inclined to car leasing as it may provide more appeal than outright ownership. In addition to being familiar with the concept of leasing, more millennials place usership above ownership. As such, more people will be keener on getting a service or product that fulfills their needs rather buying it outright. This means that car leasing provides the ultimate appeal for the millennial.
4. Access to More Information
Millennials are a generation that has grown up in the information age. Unlike their parents, they do not have to visit the dealership and deal with a salesman as they are more tech savvy. They can go online at any time and research the price, features, model and make of a car they like. They will then use that information to find a lease deal that fits their needs. Millennials also have more access to information online, where they can check out the price of the type of car they need to lease, the monthly payments and related costs.
5. Millennials Love to Have Choice
The millennial has lots of choices and this translates to their choice of car ownership. Millennials want to have a choice of upgrading their vehicle to fit their current life. For instance, they may buy a small compact car when they are younger. However, they will need something like an SUV when they start a family.
What to Watch out for When Leasing a Car
Just like with anything, leasing also comes with some disadvantages. The following are some disadvantages you need to be aware of when you decide to lease rather than buy:
1. Mileage Caps
Almost all vehicle leasing contracts will have a mileage cap. The industry average is about 15,000 miles a year. The dealership will expect you to drive the vehicle no more than the agreed upon number of miles a year. If you exceed that mileage, you will have to pay financial penalties for each mile you go over the limit. Most contracts charge about $.20 for every extra mile, which can really add up if you are hundreds of miles over the limit.
2. Wear and Tear Costs
The dealership expects that you return their vehicle back to them in pristine condition. Once your lease is up, they will go over the car with a fine tooth comb and you will often have to pay something. Most lease contracts assert that the car should be returned in the original condition, which is almost impossible to do especially if you have pets or children. Besides, if the car is damaged in any way, you will have to incur a hefty bill before you are released from the contract.
3. You Have to Maintain the Vehicle at Recommended Auto Service Shops
Most auto lease contracts require that you bring the car to them for regular maintenance or take it to recommended service shops. You need to have all the records as proof that the vehicle was serviced at regular intervals to avoid extra charges. You may also need to pay gap insurance to compensate the dealership in case the vehicle is totaled or badly damaged in an accident.
4. You Never Get to Own the Car
The payments are only slightly lower than those of buying the vehicle outright (typically about $120 less) but you never get to own the car. All the money that you pay in the initial payment, penalties, and monthly payment are nothing but money you will never see again. At the end of the lease period, you will return the vehicle and your money will be gone.
5. The Requirement for a Good Credit Score
Auto dealers take on a lot of risk when leasing a car and hence they need your credit to be good. As such, if you do not have a good credit score you may not qualify for leasing. In fact, you will typically stand a better chance of getting approved for a purchase rather than for leasing.
How Millennials Go About the Car Leasing Process
Millennials spend a lot of time online doing research, unlike their Generation X and baby boomer counterparts. According to a survey by AutoTrader.com, millennials spent more than 17 hours on research before making the decision on what car to buy. They typically want to consider all options and look at every possible car out there. Of all the respondents of the study, 88% asserted that the Internet was their favorite way to perform research.
2. Make a Decision on How Much to Pay Every Month
Once they have researched the vehicle leasing options, they will then make a decision on how much money they can pay. They will typically depend on internet research to find the dealerships offering the best rates in the market. Tons of millennials are now qualifying for aggressive lease programs from their credit histories.
3. Select Model and Make of Car
Millennials are a very choosy subgroup and will not take just anything. They tend to prefer higher-end vehicles, which come with all the bells and whistles. Millennials will typically go for something like a Lexus, or the latest model BMW or Mercedes. Another important factor that millennials will also take into account will be the size of the car. The younger demographic will typically go for compacts while older millennials will go for sedans or SUVs.
4. Check for Mileage Allowed on the Lease
Recent data is showing that millennials are driving more than ever and hence the mileage allowable on the lease is an important factor. Once they get the model and make they want they will research the mileage on the car. Persons from the urban cities tend to drive less, but their more rural counterparts love to have a lease that has a lot of mileage, or if not they will negotiate for it.
5. Compare Prices from Different Dealerships
Millennials hardly ever go with the first lease contract you are offered. They will always compare the prices and terms from different dealerships and let them know that you are shopping around. They are rigorous in asking about monthly payments, how many miles are allowed a year, drive off fees and other expenses. By making comparisons, they can always get a good deal from the dealerships. Since they call rather than coming physically to the dealership, they tend to get better deals than most.
Once they have settled on a dealership, millennials will get the best deal they can by negotiating. Given that many do not have a lot of disposable income they tend to negotiate the lease prices just as if they are buying the car. They do their research and have the lease prices across the industry, which makes them tough customers that get great prices. They also negotiate other things, including mileage allowance and down payment in addition to the lease purchase price.
7. Sign the Lease and Drive Off
Once they have a good price for a car they like, they sign off to get insurance and drive off with the car.
While millennials are increasingly opting for car leasing rather than buying, car ownership is not going away any time soon. If you are a millennial that loves the fact that you could get a new car every two or three years, then you should definitely go with leasing. Nonetheless, you have to take into account that there are other costs to leasing, which may significantly increase the amount of money you have to pay upfront and at the end of the lease. All being said, car leasing is a big business and will continue to experience explosive growth with more millennials increasing their disposable income. If you are certain that you can drive below the mileage of the lease, have a good credit score and can keep the vehicle in good condition then, by all means, go for a leased car. However, if you do not care for new technologies and features every few years, and do not have a good credit rating, then you should probably consider buying a vehicle rather than leasing.