Millennials are the most tech-savvy of any generation – with the Internet, smart phones, iPads and video games all popularized during the lifetime of these 80 million or so Americans born between 1982 and 1995. Technology has changed the way we all work and live, and now it is also changing the way we, especially Millennials, purchase cars.
Leasing a Sweet Spot
According to a Lease Market Report by Edmunds, Inc., a leading auto industry market researcher, nearly one-third of all Millennials who purchased a new vehicle in 2016 chose to lease instead of buy, up from 21 percent in 2011.
Edmund points out that although Millennials leased only 12 percent of all vehicles purchased in the U.S. last year, they proportionally used leasing more than any other age group. “Leasing hits a sweet spot for Millennials – they can enjoy the benefits of owning a new vehicle at a low price point with the latest features they crave,” explains Jessica Caldwell, Executive Director of Industry Analysis for Edmunds, in the report.
In a recent Los Angeles Times article (“Cars are Full of Tech That Gets Outdated Fast – So People are Leasing, Not Buying,”) reporter Jack Flemming writes, “As technology disrupts the auto industry, it’s no surprise who has been the quickest to embrace the changes: Millennials.
“Much like new technology is the driving force behind the short life cycle for cellphones, the same forces are now at play with automobiles. In recent years, automakers have started calling themselves technology companies, pointing to big jumps in software innovation that have improved navigation, safety and infotainment systems. But if you bought a car five years ago, it probably doesn’t possess many – if any – of those features.”
When it comes to a preference for leasing, Millennials are not alone. Edmunds reports that in 2016 automotive leasing volume reached an all-time record with 4.3 million vehicles. Over the past five years, lease volume grew by 91 percent and in 2016 accounted for 31 percent of all new vehicle sales, up from 29 percent in 2015.
Advantages of Leasing
Along with advancing technology, auto leasing is increasing due to the higher prices of today’s slick trucks and SUVs. SUV sales surpassed passenger car sales in 2016 for the first time ever, according to Edmunds. “Leasing has long been the gateway for car shoppers who are looking to get a nicer vehicle than they could if they financed,” states Edmunds’ Caldwell. On average, a lease is $120 less expensive than a car payment, according to the Edmunds report.
In the Edmunds article, “Should You Lease or Buy Your Car?,” Ronald Montoya provides six benefits of leasing. He writes that you can drive a better car for less money; you will most likely have lower monthly car payments; and you pay less sales tax. Other positives are that you will have lower repair costs because you are under the vehicle’s warranty; you can more easily transition to a new car every two or three years, especially if you are a technology buff; and you generally don’t have trade-in hassles at the end of the lease.
However, there are negatives: you don’t own the car at the end of the lease term, although for extra cash you can extend the lease; your mileage is typically limited to 12,000-15,000 miles a year, but you can purchase extra miles; you can end up paying more in the long run for a leased car than you would if you buy the car; and finally, you could face excessive wear-and-tear charges if you don’t take good care of the car, which can be a nasty surprise at the end of the lease.
Advantages of Buying
If you plan on keeping your vehicle for as long as possible, buying your car or truck makes sense. According to Montoya, you actually save money over the long term if you buy your car since once you’ve paid off the loan, the car becomes relatively inexpensive transportation, assuming you maintain it properly. You can then use that saved cash from monthly payments to put away for other goals – such as buying a home.
Other benefits are that you can drive your vehicle as much and as far as you like and not worry about excess mileage penalty; you can sell the car whenever you want and use it as a trade-in on the next car; and if you’re not happy with features from the factory, you can add to and/or modify your car to your liking.
But, again, there are negatives. One of the biggest is that new cars require significantly more upfront money with a down payment, sales tax and other financing costs that could add up to several thousand dollars. Consequently, your monthly car payments will most likely be higher than lease payments for a comparable vehicle.
Other drawbacks include the fact that new cars generally begin to depreciate in value once you drive off the dealers’ lot, a cost that you absorb as the owner; you are responsible for maintenance fees; and you could face possible trade-in or selling hassles when you decide to purchase your next new car, depending your current car’s age and condition. If you plan to buy, read auto reviews from sites like Consumer Reports and make sure you purchase a car with a high dependability rate to lower your maintenance costs and ensure the highest resale value possible.
Credit Unions Can Help
Whatever you choose to do, it will be worthwhile to check in with your local credit union. Whether buying or leasing a vehicle, credit unions generally have lower interest rates than banks and attractive terms that can save you money. In fact, Callahan & Associates reports on its website that auto lending by credit unions grew by 13.8 percent from March 2016 to March 2017, and an increasing number of members are purchasing their vehicles – both new and used – through their credit union. They know a good deal when they see one.