Why Car Leasing is Popular in California
Since 2017, it has been the case that roughly 1 in 3 cars in the US is leased. The numbers fluctuated somewhat, but on average, according to data from Statista, about 30 percent of newly-bought vehicles were done so on a lease agreement. The low point was Q2 2020 where the percentage was 25.81%, and the high point in Q3 2017 where it was 34.07%.
California has the biggest population at 39.7 million, and so is home to a huge number of these national car leases. Why has leasing generally remained so popular in California? That’s what we’re exploring in today’s blog piece.
Reasons Car Leasing is Popular in California
The year 2020 showed everyone that everything in life can turn on a dime with a single event. Car leases offer a short-term flexible way of having a car without having to be burdened with it as your own depreciating asset for many years ahead. You can choose leases that fit with a particular timeframe, such as when you move to a location for a new job under a fixed-term contract. You know you’ll leave that place in 3 years, and during that time you’ll also need a car, and so a 3-year lease is perfect.
There’s usually further flexibility at the end of the lease, too. You can often choose to return the car, trade it in for an updated model, or buy out the remainder of the lease and keep the car as its 100-percent owner.
2. Monthly Cost
The typical monthly cost of a lease is lower than that of a car loan. This is because during the lease period, you only pay for depreciation on the vehicle, and not the entire value of the vehicle. With costs lower, this allows Californians to lease cars that are significantly upgraded compared to other models that they may otherwise not be able to afford to purchase. Depending on the car model, you might not even have to pay a deposit.
When you own a car and you have the foresight to think into the long term, one question will always badger the back of your mind — what do I do with this car when I finally want to change it? People change cars for all sorts of reasons, and the need to sell may well rear its head at some point. Selling the car and getting the best price are two different matters. Local car dealerships will likely take it off your hands but won’t offer an ideal price. A private buyer will pay more, but they are harder to find.
Leasing removes any and all of these concerns. When the lease period is up, you know exactly what will happen to the car. It will go back to the car dealership and you will get a new one, or it will simply be taken away and you can wash your hands of the whole affair. Alternatively, you’ll buy it and keep it for yourself. In any scenario, the result is clear-cut and predictable.
4. The Depreciation Game is Win-Win for the Lessee
The amount that is paid on the lease is determined at the start of the contract based on what the dealer predicts the car will be worth at the end of the contract after depreciation. If the end result is that the car at the end of the agreement is actually worth more than predicted, it makes no difference because you can still buy the car at the predicted value. You could then subsequently sell it for a small profit to gain back some of your spending.
Even if the end result of the lease is that the car has depreciated much further than predicted, it’s still not your problem because you aren’t the owner who has to later face selling the vehicle as a pre-owned car at a loss.
5. Tax Deductions
California residents face some of the highest tax levels in the entire country, mostly because of the high rates of state tax. The highest rate of state income tax in California sits at 12.3 percent. According to California’s own government data, the state is also home to 4.1 million small businesses run by plucky entrepreneurs. When you put these things together, you get a lot of people who want to do everything they can to reduce their tax burden.
One way you can do that is with a car leased for business. If you lease a vehicle for business purposes, you are able to deduct more — up to $9,600 in leased vehicle expenses or $800 a month according to rlsglobalconsultinggov.com — which makes leasing a great way for Californians.
Conclusion: Leasing is Here to Stay
Despite there being some opposition to leasing and those who say leasing is an unsuitable arrangement, it will continue to thrive in California as long as the many benefits of leasing exist. The fact is that leasing isn’t the right option for everyone. Some people are better off buying a new car in a new car dealership in San Diego, and others might be better off with no vehicle.
Check out how CarBevy makes buying a new car in Southern California easier than ever by simplifying prices through a name your own price model and cutting out the messy business of negotiation.