Leasing's New Life as Monthly Payments Get Squeezed

Leasing isn’t new.

But as the market tightens and sale prices and MSRPs begin to rise there is renewed interest in the option that puts people in newer rides while keeping monthly payments low.

In 2024, leasing accounted for nearly a quarter of the new car market, and a McKinsey study showed that while consumers value the flexibility leasing offers, most lack a clear understanding of how it works. More than half of consumers who don’t currently lease said they couldn't explain it to a friend, and even many who do didn’t know who owned the vehicle.

That’s likely because shoppers are consuming information from a variety of sources whether that’s family and friends with strong opinions or social media like TikTok with dozens of gurus for and against leasing. Dealers might know the benefits outlined below but they also need to be prepared to explain them to car shoppers who don’t.

Lower Barrier to Entry

New and used car prices have soared over the last several years. Leasing, in most cases, offers lower monthly payments and many shoppers are focused only on their monthly budget. Additionally, lease agreements typically have lower down payments. For buyers with limited savings or those trading in an upside-down vehicle, leasing can help them get right side up.

Leasing also tends to come with lower interest rates. Because manufacturers typically finance leases, shoppers often get access to more competitive interest rates than what they’d see at their local credit union.

More Convenience and Peace of Mind

Leases are only available for newer vehicles (it's possible to lease a used car, though it's far less common), so most stay covered by the factory warranty for the entire term. That takes the sting out of potential repair costs. Additionally, many leasing packages include maintenance coverage, which is particularly valuable now, with tariffed auto parts threatening to drive up maintenance costs.

If a buyer chooses a lease, it offers a way to test out new types of vehicles with less skin in the game. For instance, a first-time electric vehicle buyer may be unsure whether going electric fits their lifestyle long term or if the vehicle will prove to be durable.

Leasing also offers buyers access to the latest technology, safety features, connectivity options and designs without having to deal with the hassle of reselling or negotiating a trade-in. Lessees simply turn in their lease every few years, before the tech feels outdated, and move on to their next vehicle with the newest features.

Tax Benefits of Leasing a Car

Buyers should also consider a lease's tax and incentive considerations, particularly for EVs. Certain EV leases offer immediate federal and state tax benefits. In Colorado, for instance, some buyers have effectively driven off in the Fiat 500e with a near-zero net cost.

While not all states offer the same impressive incentives as Colorado or California, lease-related incentives are often more impressive than those for outright purchases. CDK found that 70% of EV shoppers would consider leasing if they could take advantage of tax incentives in the lease deal.

Lease to Own

If a buyer comes to love their vehicle, lessees aren’t forced to turn in the car. Most leases offer the option to purchase at the end of the term, and sometimes, the buyer may find they already have some equity in the vehicle.

However, some consumers may believe the lease buyout isn’t an option because, for a time, some automakers like Nissan and Tesla didn’t allow lease buyouts at the end of the leasing term. This practice was unpopular with buyers; a CDK study showed that 52% of EV owners wouldn’t lease an EV if the automaker didn’t allow buyouts. Many automakers have since changed their practices, giving buyers back the flexibility leasing offers to test out a vehicle long term before committing to the full purchase price.

Leasing offers more than a strategy to drive sales or supply future used inventory. It provides a customer-centric solution that genuinely serves the needs of some car shoppers.