Why are leases so expensive right now?

Can someone please explain to me (or link another thread that explains) why car leases are so much more expensive right now? I’ve leased my last 3 cars (all 3 were compact suvs with selling prices in the 21,000-23,000 range, all 36 month terms, and all with 12,000/miles a year). I have paid between $200 and $250 a month, with $0 down. I leased my recent car in 2021, so I have it for 2 more years, but I’m currently shopping around for a lease for my partner and while I’m looking at comparable cars with similar selling prices (20k-25k) the lease prices shown are between $350 and $500 a month with 0% down. I don’t understand how/why the cost to lease has gotten so much more expensive just in the last year? I know about the chip and additional manufacturing shortages, so is it simply because of supply and demand that they’re charging way higher “rent” rates? It’s not like the car’s depreciation would be that much more significant, right? For example, a $22,000 car with a $450/mo lease would cost $16,200 over the length of the lease, whereas my previous leases for a similarly priced car only cost me between $8,000 and $10,000 total. Is leasing no longer an economical option, or is there something that I’m missing here?
Thanks so much.

1 Like

Supply and demand.

2 Likes
2 Likes

tl;dr - Inventory is low, incentives are low-to-none, MFs aren’t especially low

2 Likes

Thats actually a large part of it.

On a lease, your depreciation is basically the difference between your post incentive selling price and the residual value (assuming youre not capitalizing fees).

Residual values havent changed significantly (despite the current used market being ridiculous, that doesnt mean people expect it to be 3 yeara from now), however, incentives have pretty much dried up and dealer discounts are few and far between on most vehicles. As such, the difference between the post incentive selling price and the residual value has grown. Add in higher money factors boosting the rent charge and just overall higher msrps and you get much higher lease rates.

3 Likes

Not really.

@mllcb42 basically explains it (RV hasn’t changed but the depreciation has b/c everything is selling for MSRP or above), and, in the vast majority of cases now, financing makes more sense (or, at least, isn’t any worse than leasing).

I totally get what you’re saying regarding less incentives. But the cars I’m looking at right now have approximately the same final selling price as the cars I’ve previously leased. For example I’m looking at one right now that’s around $22,000 with no incentives, but I previously leased a $25,000 car with around $3000 in incentives, so ultimately the selling price is basically the same. So if that specifically isn’t a factor at the ones I’m looking at, and the residual value is expected to be relatively the same… then mathematically speaking, is there anything else that the massive cost difference could be attributed to besides the interest/“rent” cost?

$25k car with $3k incentive will always have lower lease payments than a $22k car with no incentives. That’s how the leases work since the RV is calculated based on MSRP (not sale price).
Low lease payments happen with big incentives/discounts combined with low MF (i.e interest rates).

7 Likes

Aren’t these two threads the same lol

Cars are also going up in price quickly… I ordered a Jeep June 10th of last year… msrp of 60085. The same Jeep one year later is 66000.

Money factors are also quickly rising.

It’s time to look at buying.

2 Likes

Pretty much. I just wasn’t able to find it myself which was why I also asked for anyone to link a similar thread, so thanks :slight_smile:

Out of curiosity, what ia the new vehicle and what are the terms. The dealer may have lots of add ons in there to make it look like it is selling at msrp, but actually be much higher.

Its a ford ecosport, $446/mo, 36 months, 12k miles

Ah okay, that is good to know. It seems like that comparison was maybe apples to oranges then. I just looked at my most recent lease contract which is closer in comparison since it was just last year and there were less incentives, but I still got a much better deal. $23,900 approx msrp, final selling price of $23,400. Compared to one I’m currently looking at for $23,500, no incentives and the lease cost is $200 more a month ($250 vs $450)

Have you put together a calculator to see if $450 is an appropriate price for an at msrp sale price?

That translates to $16,000 over the course of three years. I’d look at financing a better vehicle that’s historically held its value better than an EcoSport. You’ll end up with a lower total cost of operation (likely less depreciation than $16K) and a more pleasant vehicle to live with. Perhaps order a Subaru Crosstrek or Forester, or a Mazda CX-5, at MSRP and finance it with the lowest APR loan you can find?

3 Likes

Was car shopping with a coworker, and saw an EcoSport on the road. Couldn’t even figure out what it was at first - it’s such a weird shape, and it screams generic. I’d reckon the Subarus and CX-5 would hold values much better. I haven’t sat in an EcoSport, but I highly doubt it’s as nice as a CX-5 on the inside.

Not originally intended for the North American market…

Lol yes, I agree. It’s no longer a car I’m considering, I was just trying to understand the math of why it was so much more expensive to lease.

I apologize, I’m not sure I understand exactly what you mean by put together a calculator? Based on my math it’s over 16k in payments on a 23k car for a 3 year lease, which is clearly a terrible value. Just for clarification, I’m no longer considering this car, I was just trying to understand the math of why it was such an expensive lease.