Whether it be personal or business, I guarantee that I get at least two dozen or more questions a year from clients as to whether or not they should buy or lease a car. Many of my clients think there is some secret tax advantage to one over the other. I am here to dispel that rumor. There is no overwhelming tax advantage to buying or leasing a car.
Economic Reasons to Buy or Lease
The decision to buy or lease is based solely on the economics involved:
- When you buy a car, you own it for life or until you want to trade it in for another car.
- When you lease a car, you only “borrow” it for a certain period of time, unless you want to buy it out at the end of the lease.
Most leases only allow you to drive a certain number of miles per year. However, you can adjust this if you think you will drive more miles than is allotted – but that will raise the price that you will pay every month.
Let’s say you bought or leased a snazzy little sports car. A year and a half later, you and your partner have triplets and no longer will fit into your little sports car. If you own the car, you can trade it in for a minivan or SUV. If you lease a car, it will be a little harder to get out of that lease, and the early termination charges can be almost as costly as the contract.
Trading In or Exchanging
One of the easier things about a lease is that when it is up, you simply bring the vehicle back and get another one, so If you want a new car every three years, it’s probably better to lease. However, when you turn the car in, the dealer will check to see if you’ve gone over the mileage, and then look for wear and tear. This is a very subjective inspection as to whether it’s average or excessive. The dealer will then charge you whatever he/she feels would be the cost to bring the vehicle back to a regular wear and tear condition.
When you own a car, you have to go through the hassle of either selling it privately or trading it in. Trading it in is not as much trouble as selling it privately, but you usually get less for the car on a trade in. As I said earlier, you’re free to drive as many miles as you want; however, understand that that will lower the vehicle’s value.
Owning a car usually requires more up front money. In the case of someone with great credit, the dealer will finance the whole cost, but that leads to higher monthly payments.
Leasing usually involves a first and last month’s lease payment and maybe a security deposit.
Luxury vs. Practicality
As human beings, we often have an emotional attachment to our cars, no matter what our age. With leasing, since you’re only paying for the three years or so you’re using the car, you can maybe get a more upscale car at the same monthly payment as owning a more moderate model. However, on the back end, you’ll be economically behind the person that decided to buy, but you might have had more fun.
Basically, it comes down to this:
- If you’re the kind of person that wants a new car every three years, it will probably be more economical for you to lease.
- If you can live with a car longer than that, then it probably will be less expensive for you to buy.
Again, buying gives you more flexibility on how long you want to own it; leasing, you’re tied in to the contracted time period.
Have you bought or leased a car lately? What was your experience like? What would you recommend to people looking to buy or lease?