Millennials Prefer Leasing Luxury Cars – Here’s Why
Many media voices love telling us that millennials can’t afford to eat out, study, purchase property, or buy diamonds. This generation may be less well-off than those before, but an increasing number of Millennials leasing luxury vehicles shows that it doesn’t mean they don’t like nice things.
Millennials are known either as the generation with a love of freedom and flexibility or as commitment-phobes. Whichever way you look at it, the trend is in keeping with that trait. Here’s why they do it.
The Flexible Generation
People born between 1981 and 1996 are no strangers to pay-per-view, pay and go, mobile device contracts that offer upgrades, renting suits and ball gowns, and leasing homes. Leasing vehicles is a natural extension of that. According to a 2016 report, 34.2% of millennials in the US would rather lease than buy.
For a deposit and affordable monthly payments, millennials who opt to lease can enjoy the pleasure of driving a new luxury car for 36 months. When the contract is up, they may have the option to purchase, or they can upgrade. If their circumstances change, it’s easier for them to adapt, car-wise, when a lease is involved.
For many millennials who are at the start of their career, even a used luxury vehicle is out of their reach. Spending years paying off an entry-level or standard car is understandably unappealing to a demographic who are used to instant gratification.
A More Affordable Option
A growing number of millennials think leasing is a far more attractive option than a long-term commitment. If they bought a car, they’d have to drive the same vehicle for several years while forking out for a higher down-payment and monthly installments.
Together, the deposit and the monthly payments cover the difference between the upfront cost and the residual value. The latter estimates the car’s value after the lease period, which is fixed in advance. The monthly payments to purchase are almost $100 higher than lease payments, as in the case of a purchase, the buyer must finance the vehicle’s full value.
Warranty Covers Services And Repairs
Bumper-to-bumper warranties are another reason why millennials prefer leasing luxury vehicles. They don’t want the stress, hassle, or cost of servicing and repairing the car. That trait was demonstrated by a 2014 RepairPal survey, which found that 49% of repair shop owners said that, of all the generations, millennials were least likely to take their cars for routine maintenance.
The warranty that usually covers the entire lease period makes the hassle and costs of repairs and servicing easier to deal with. Manufacturers, such as BMW and Toyota, offer free maintenance programs for leased cars.
Millennials may be on to something here.
Believe it or not, they do pay less when it comes to maintenance costs. According to the AAA 2016 driving cost brochure, the average driver pays 4.81 cents per mile in maintenance costs. The average of 15,000 miles that drivers in that generation accumulate annually pushes their maintenance costs to more than $700. Thanks to warranties and free maintenance programs, that’s $700 saved each year.
Keeping Technology Updated
Whether it’s a laptop, smartphone, tablet, AirPods, or any other technology – yes, even the tech in cars – millennials like to keep it updated. The gap between innovative technology being debuted in cars is decreasing. If they’re financing a vehicle to purchase it, they will miss out on all the upgrades.
For tech-lovers, not having the heated seats with massage functionality as found in some Ford and Kia models, or a lack of built-in Wi-Fi hotspots that GMs and Buicks are now incorporating, can lead to major FOMO.
Leasing Offers Better Cash Flow
When purchasing a car, the recommended down payment is 20% of the vehicle’s price. That’s followed by relatively steep monthly payments. For many millennials, parting with the large lump sum and making the monthly payments on a luxury car would throttle their cash flow.
However, when it comes to leasing a car, the down payment is considerably lower, if there is one at all. The monthly lease payments are lower too. For example, if you were purchasing a Chevrolet Malibu Limited in 2016, you may have paid monthly payments as high as $293. However, if you leased the car, your monthly payments would have been $185. There is often room for negotiation too, and most leasing companies or dealerships are open to discussing rebates, lease deals, and other cost reduction offers that can drive down the rates.
When you’re a young person who’s still getting to grips with monthly expenses, bills, debts, and fees, even a difference of $100 per month is significant.
Not All Easy-Going
Even though leasing a luxury vehicle is an attractive option for millennials in many ways, it’s by no means all sunshine and roses. Some lease agreements have aspects that require careful weighing up before signing on the dotted line.
For example, many vehicle leases have annual mileage caps. In most cases, lessors are allowed to drive between 12,000 and 15,000 miles per year. If they rack up greater mileage, they’ll have to pay penalties of between 10 and 15 cents per mile.
Another downside to car leases is that once signed, they’re difficult to get out of. This usually is because the lease-breaking penalties are so steep, lessors end up paying more than they would have done if they’d waited until the end of the lease period.
Although many car leases’ warranties and maintenance programs cover general wear and tear, some things won’t be included. For example, cleaning food or drink spills in the car or repairing scratches or dings that happened because the driver misjudged a turn in a parking lot may need to be covered by the lessor – and that could turn out to be quite pricey.
Brands Love Millennials
There may be a lot for millennials to consider when leasing luxury vehicles, but they take it in stride – and brands love them for it. Dealerships have realized that leasing is a key to brand loyalty, as most Millennials will lease another vehicle from the same dealer at the end of their leasing period.