Leasing was, for decades, a second option next to buying a car for consumers. It was popular among people with specific needs, or customers who just wanted to try the car before buying a new one, but generally speaking, leasing has remained in second place. Until, according to the data, Millennials started looking at cars.
The data is small, but attention-getting: Nearly a third of Millennials with a car use a lease instead of a buying agreement, compared to a quarter of all auto buyers. Furthermore, leasing has gone up among Millennials by 46% compared to 42% for all car buyers. By itself, it doesn’t sound like much, but the trend is rising and long-term, it might change how cars are bought and sold increasingly.
Why are Millennials looking at leasing? The short answer is that leasing makes more financial sense for them. Millennials hold an enormous amount of student loan debt, and repaying it is making an entire generation reconfigure its life choices. At the same time, they need a car to get to work and to transact most of their lives, so they need to work that into their budgets.
From that perspective, leasing a car makes the most financial sense. Millennials are generally unwilling to pay more than $299 a month for a car and unwilling to put more than $3,000 down, and those limits generally mean either they’re picking up a car for less than $20,000 … or leasing a car that would cost much more to buy. Especially for Millennials who need expensive vehicles for work or who want to buy a more ecoconscious vehicle such as an electric car or a hybrid, leasing is often their only option.
The main question, of course, is what this means both for car sales and auto loans going forward. Will Millennials continue to lease? And how will this change buying a car?
Lease Or Buy?
It’s unlikely Millennials are going to stop leasing any time soon; the average price of a new car is only rising, and for many Millennials, the appeal of getting a car and turning it back in for a new one after a few years with no paperwork might be too much to resist. That said, it should have some curious effects on the auto industry buyers can take advantage of.
First of all, it means there will be an increasing number of quality used cars on the market. Many “certified pre-owned” vehicles are actually leases that were turned in; that will make securing a loan for a used car much easier to secure, as both lender and borrower know they’re getting a quality car that’s seen a minimum of use.
It will also mean people who actually want to buy a car, and thus make the dealership more money, will be competed over ever more fiercely. Especially if trends continue, car sales will start to take a back set to leasing. So, if you’re a Millennial buying a car, remember that you’ve got a distinct advantage, and a chance to get in on the ground floor.