Auto Finance FactsBefore the COVID-19 pandemic, nearly a third of new car shoppers chose to rent their cars. Today, less than 19% of buyers choose the option – and experts say that number could drop further by the end of 2022.

Leasing allows car shoppers to qualify for lower monthly payments. It also allows them to get into a new car without the long-term obligation of owning an obsolete and dilapidated asset.

Leasing hit a recent peak of 34% of the new car market in February of 2019, according to parent company Kelley Blue Book Cox Automotive.

Three reasons for landing

Charlie Chesbro, an economist at Cox Automotive, cites three reasons for this downturn.

higher prices. Rental payments are usually lower than new car loan payments. But with new car prices rising, rental payments have grown so large that they have driven some buyers out of the market. Today’s average rent payments are roughly the average loan repayment of 2020. This may cause some shoppers to leave the market altogether.

Tenants keep their cars. At the end of the lease, renters usually have the option to buy the car at a set price when they first signed the lease. Traditionally, most of them do not. Instead, they will return the car to the dealer and start a lease for a new car. But the price hike created a strange scenario where many rental cars were worth much more than their purchase price at the end of the lease. Therefore, many savvy shoppers simply bought their rental cars.

Today’s rental offers are not attractive. Automakers and dealers make more from selling than renting. With demand for new cars outstripping supply, they are not offering attractive rental terms in 2022.

This could mean fewer used cars later

Chesbro says the trend away from leasing has short- and long-term implications.

In the short term, it “limits the pool of people who can buy a new car, which shrinks as car prices rise and interest rates increase.”

In the long run, that could mean fewer used cars will reach the market. The cars that are rented are relatively new and are used nicely, thanks to the mileage limits included in most rental contracts.

These cars, Chesebrough says, “often fuel the market for certified used cars, which are popular with consumers who can’t afford a new car but want a quality product with a guarantee.”

Fewer of these is “one of the reasons we believe used prices may remain high for longer as demand slows due to higher interest rates”.

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