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To Lease or Not To Lease,
That is the Question |
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It seems these days that any time you see an automobile ad, they advertise a lease payment, instead of a loan payment. Almost every make and model of car is now available for lease, as well as for sale, and the auto manufacturers are pushing their lease programs aggressively in their advertising.
So when does leasing an automobile make sense, and when should you buy? The answer depends on what you need from the vehicle you drive.
Typically, an automobile lease works like this:
You write a check for a certain amount of money and drive the car home. Then, you start making monthly payments for the car, and if you don’t make the payments, they take it away.
Granted, that sounds exactly the same as buying a car. So what’s the difference between buying and leasing?
The primary difference is in ownership. When you buy a car, you own it. And when you’re finished making payments, you still own it. In fact, you own the car until you sell it or give it away. When you lease a car, however, the lessor has legal ownership, even though you’re driving the car every day.
When you buy the car, it’s your car, and you can do anything you want with it. You can drive it as much as you please, paint it a different color,install any option you like, and sell it for a price you think is fair.
There are some advantages to leasing, which offset the lack of ownership, including an initial payment that is usually less than the down payment needed to purchase it. Often, the monthly payment is a little less, too, and you may get certain added benefits, such as low-cost maintenance, which further keep your cost down.
Leasing also has an additional benefit for people who use their vehicle for business purposes, thanks to the IRS. When you lease, you can deduct from your taxes a larger percentage of the car’s depreciation as a business expense than you can with a car you own.
Finally, some leases are available with an option to buy the car once the term of the lease has expired. The advantage of this arrangement is that you will have complete knowledge of the car and how well it performs, as well as how well it’s been taken care of.
It’s important, however, if you plan to enter into a lease-to-own agreement that you know the total costs involved with both leasing and purchasing. Often, dealerships keep the initial down payment and the monthly payment lower by inflating the purchase amount due at the end of the contract.
Before you sign, you should know how much the down payment, monthly payments, and final purchase price add up to. And remember, most leasing contracts limit the number of miles you can drive before you’re charged on a per-mile basis. Then, compare that number to the total cost of purchasing the car through a standard auto loan.
The people who most benefit from leasing a car are those who otherwise would buy a new car every year or two. So if you plan to keep the car a short time, lease it and negotiate the best mileage allowance and maintenance cost you can. But if you’re the type that likes to buy a car and drive it well past the term of the loan, buying is the only way to go.
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