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Should
you lease or purchase your next vehicle? Both options have advantages
and disadvantages, but there are different costs, restrictions and requirements
between the two options. The biggest difference between leasing and
purchasing a vehicle is when you buy a vehicle you’re paying to
own the vehicle. When you lease a vehicle, you’re paying to drive
the vehicle for a certain amount of time.
- Do
You Want Lower Monthly Payments?
- How
Important Is Convenience?
- Do
You Maintain Your Car?
- How
Far Do You Want To Go?
- Would
You Need To Terminate Early?
- Do
You Like Change?
- Do
You Have A Vehicle To Trade In?
- How
Will You Use The Vehicle?
1.
Do You Want Lower Monthly Payments?
Generally,
your lease payments are lower than loan payments because you’re
only making payments on the depreciated portion of the vehicle you’re
driving during the lease agreement. Loan payments must cover the entire
purchase price of the vehicle. In addition, you may have a lower down
payment when you lease.
There
also may be tax advantages to leasing. (Check
with an attorney or tax consultant on the deductibility options available
for your situation.) Essentially you only pay tax
on the amount of vehicle you use. For a three-year lease, you only
pay sales tax for the 36 months that you’re using the vehicle.
If you purchased the vehicle outright, you’d pay sales tax for
the entire purchase price.
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2.
How Important Is Convenience?
When
the lease expires, you may have several options – you can return the vehicle, you can purchase the vehicle or you can lease another vehicle.
Each option has advantages and disadvantages depending on your specific
circumstances. Return the vehicle and you might have to pay additional charges if you haven’t properly maintained the vehicle. Buying the vehicle
at lease end may be more expensive than purchasing the vehicle in
the very beginning. Leasing another vehicle is usually the best option,
but you still need to come up with additional funds to start another
lease.
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3.
Do You Maintain Your Car?
With
a leased vehicle, “you gotta be good to your car!” Most
lease agreements take into account normal wear and tear, but be sure
you understand the difference between normal and excessive wear. Leasing
also requires certain maintenance obligations to be done on a regular
schedule with documented records to verify the service was performed.
If you do not regularly maintain the vehicle, carefully
consider whether leasing is right for you.
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4.
How Far Do You Want To Go?
Leasing
can be an option if you put less than 15,000 miles annually on your
vehicle. If you think you’ll drive more than this, you may need
to consider purchasing extra mileage. Going over your agreed-upon
mileage limit can result in mileage fees – typically 12
to 15 cents a mile. Speak with your dealer about extra mileage options.
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5.
Would You Need To Terminate Early?
Leasing
may not be the way to go if you think there’s any chance you
will have to end a lease early. As mentioned before, leasing is essentially
paying for the depreciation of the vehicle you’re driving. If
you end the lease early, you’re not paying for the full depreciation
amount you agreed to in the lease terms. Your dealer might charge
you an early termination fee to make up the depreciation difference.
Read the details of your contract for early termination penalties.
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6.
Do You Like Change?
Leased
vehicles cannot be changed or modified by adding permanent accessories.
The vehicle must be returned in the same state as it was originally
leased to you (less normal wear and tear).
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7.
Do You Have A Vehicle To Trade In?
If
you’re leasing a vehicle for the first time, you probably have
a used vehicle that you will want to trade in. This can serve as a
down payment and will help lower your monthly lease payments. However,
when your lease is over and you want to lease another vehicle, you’ll
need to come up with additional funds for a down payment.
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8.
How Will You Use The Vehicle?
If
you plan to use your leased vehicle exclusively for business, you
may be able to claim the lease payment as a business expense. Check
with an attorney or tax consultant on the deductibility options available
for your situation.
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