|To Buy or to Lease?
More than one third of consumers lease their vehicles instead of buying them. One of the greatest benefits of leasing is that you get to drive a newer vehicle more frequently and with most leases running concurrently with the factory warranty on your car, seldom need more than routine maintenance such as oil changes.
The reason so many customers are choosing leasing is that they pay for only the portion of the vehicle they use. They don't pay for the entire amount. Your monthly payments are based on the difference between the vehicle's sale price (it's "capitalized cost") and what the car or truck is estimated by the leasing company to be worth at the end of the lease term (the "residual value"). Also, typically in a lease you need only your first month's payment, refundable security deposit and license plate fees "up front", instead of a percentage down as is often required in conventional purchase contracts.
When the lease term is over, you just turn in the vehicle. You don't own it at the end, but you also don't owe anything on it either. You will be charged for miles driven in excess of those agreed upon in your contract, but buying miles in a lease is much less expensive than suffering the consequences of how the appraisal books value a vehicle with high miles when it's trade in time.
You're more likely to buy
- When you lease a car, you are typically capped at 15,000 miles a year. Additional mileage can cost you up to 35 cents per mile. And that can really add up.
- If you like to personalize a car, this investment can be lost on a leased car.
- If you like the idea of ownership, you are less likely to be happy with the lease option.
- If you like the feeling of accomplishment that paying off a large purchase brings and should consider that when you lease a car, the payment ends only when you return the car.
- If the car you presently own is over 3 years old you are more likely a buyer. While not always true, you can usually drive for less if you're willing to buy and drive for at least 3 years.
- If you don't mind doing your own car repairs, you probably don't mind driving a car after the warranty expires.
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You're more likely to lease
- Lease arrangements usually involve a 15,000 miles-per-year cap and charge for extra miles. If you drive very little, you may be a candidate for a luxury lease.
- When you negotiate a 24 or 36-month lease, you can be sure you'll always be driving a new vehicle.
- Although you need to maintain and repair your leased vehicle just as you would an owned vehicle, because you typically lease for 2 to 3 years, the car is normally under warranty.
- Many people prefer to drive a vehicle that is priced above their means and leasing provides the solution.
- If you don't mind not owning the car, you are free to enjoy the benefits of leasing like low monthly payments and a low down payment.
- If you own the company, and you use your car for business, check with your tax advisor. You may be able to deduct your auto expenses, including your monthly lease payment. And if the company you work for gives you a monthly car allowance, you may want to lease since you'll be able to drive a nicer car for a lower monthly payment.
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In short, the "bullet point" advantages as outlined by Buzz Doering, a nationally recognized leasing expert for over 25 years and author of "The Buzz on Leasing" are:
- You get more car for the money. Typically your lease payments are less on a lease, so you can choose extra equipment you might not have been able to afford in a purchase.
- You have NO depreciation risk. When you buy a car, you are gambling on used vehicle futures. You enter the world of trade value volatility and negotiation. With leasing you are completely insulated from depreciation because your car's value is the problem of the leasing company. You get to use the car's best part when it's new and then just turn it in when it's time for car owners to consider tires, tune-ups and timing belts.
- There' s NO haggling over your trade-in's value when it's time to move into a new car. You just turn it in and pick out your next car.
- You get to drive a new car more often. Because you choose the term of your contract, you decide when you get a new car. You can choose to match your lease term to the warranty of your vehicle and always be protected by factory warranty. You can enjoy the best part of the car buying experience by always being only a short time away from moving into the latest in technology, safety, style or creature comforts.
- With leasing, you are automatically limiting your liability in the case of a serious accident. When you purchase your car, your insurance will typically only cover you up to a limit of $300,000. In a lease, because you don't own the car, the leasing company does, the leasing company is then liable for claims in excess of the $300,000.
- Even in a low interest rate environment, make sure you don't just jump at the low interest rate. It may not be your best move. Compare. We have found lease payments are still less expensive than the low interest rate payments and most importantly, with your low interest rate purchase, you still are making yourself 100% vulnerable to the volatility of your vehicle's value at the time you want to trade it in.
- GAP insurance is standard on most leases. GAP stands for: What this means is that if you wreck your car and your insurance company claims it's worth $10,000, but your bank note payoff is $15,000, YOU are liable for the difference. In nearly all leases, that GAP or difference is covered by the leasing company.
- For businesses leasing there are considerable tax advantages. First, a lease is true off-balance sheet "borrowing". Since the company doesn't own the vehicle (the leasing company does) the vehicle(s) do not show as either an asset or a liability and often help in meeting certain total debt covenants in a company's banking relationship which leaves important availability on working lines of credit. The company can use it's lines of credit to help grow the business instead of tying up these funds in depreciation assets. Additionally, the lease payment is written directly as a rental expense which comes directly off the income statement and therefore reduces tax liability. As just one more benefit, leasing allows companies to have a more presentable, newer fleet of vehicles that cost them less in maintenance and up keep while providing the company a better image to it's clients.
- A final consideration is that currently the leasing companies are charging .15 to .18 per mile for miles driven in EXCESS of the miles you agreed you'd drive each year of your lease. All of the appraisal books are now charging .30 to .40 cents per mile for excess miles. For average to high mileage drivers, you can "buy" your miles at half price on a lease versus having a much larger charge against your car had you owned it and were negotiating to trade it in.