Leasing vehicles has gotten a bad rap in recent years. Leasing a vehicle may not be the best solution for all individuals. However, purchasing a vehicle may not be the best solution either. Here, we dive into both of these options and hopefully shed light on the benefits of each option.
Generally, car dealerships advertise leasing a car as a way to get a higher valued car for a lower monthly cost than if you purchase and finance it. And, generally speaking, that is true. However, like other businesses, they don’t readily disclose the potential downsides of leasing a vehicle.
When you lease a car, you are bound to several contractual obligations and it is vital that you absolutely understand every part of the lease agreement. Do not let the salesperson gloss over the fine details – read and understand every part of the contract prior to signing.
What many people don’t realize when leasing a car is that you are responsible for the normal upkeep and maintenance; this is not like a rental car that you just fill with gas. You must keep the vehicle in fine working order. There will be regular expenses with a leased car, just like with a purchased car, so be sure that you figure in these expenses in your overall vehicle budget.
Another issue that can cause a problem in leasing is the mileage. Car lease contracts state specifically the mileage you may drive each year. If you go over that number, you will be charged anywhere from $0.20 to $0.30 or higher per mile when your lease is up. So, if you drive 10,000 miles over your limit, you will owe over $2,000 when it comes time to turn in your vehicle. Be sure to select a car lease with plenty of mileage allowance to avoid this issue.
If you like to drive a new car every couple of years, leasing can be a good option as you won’t have your purchased car depreciate dramatically. Leasing can also be a good solution for small business owners. Tax codes often allow for the deduction of lease payments as a business expense. It is important to speak with a professional accountant specializing in tax laws to help you determine the tax advantages you are eligible for.
In addition, in some states, instead of paying the sales tax on the purchase price of the vehicle, you only have to pay sales tax on the lease payments – this can be a significant reduction in costs, depending on your state’s sales tax rates and the value of the vehicle.
However, leasing may not be the best solution, particularly if you typically purchase a vehicle and drive it even after you have paid off the financing. If you don’t want a continual car payment expense, purchasing and financing a vehicle that is within your budget and paying it off in 3 years may be the better option.
Shopping for a new vehicle is fun; carefully consider whether it is advantageous to lease or purchase your next vehicle. Regardless of your choice, remember to stay within your budget!
