Buy or Lease

Firm Profile Client Services Hot Topics Links Newsletter Financial Tools Contact Us Info Center

Should you buy or lease your next vehicle?

Probably one of the more difficult decisions you will have to make as a consumer is whether to buy or lease your auto. Knowing the advantages and disadvantages of buying vs. leasing a new car or truck before you get to the car dealership can ease the decision-making process and may alleviate unpleasant surprises later.

 

Nearly one-third of all new vehicles (and up to 75% of all new luxury cars) are leased rather than purchased. But the decision to lease or buy must ultimately be made on an individual level, taking into consideration each person's facts and circumstances.

 

Buying

 

Advantages.
  • You own the car at the end of the loan term..
  • Lower insurance premiums.
  • No mileage limitations.

Disadvantages.
  • Higher upfront costs.
  • Higher monthly payments.
  • Buyer bears risk of future value decrease.

 

Leasing

 

Advantages.

  • Lower upfront costs
  • Lower monthly payments.
  • Lessor assumes risk of future value decrease.
  • Greater purchasing power
  • Potential additional income tax benefits.
  • Ease of disposition.

Disadvantages.

  • You do not own the car at the end of the lease term, although you may have the option to purchase at that time.
  • Higher insurance premiums.
  • Potential early lease termination charges
  • Possible additional costs for abnormal wear & tear (determined by lessor)
  • Extra charges for mileage in excess of mileage specified in your lease contract

Before you make the decision whether to lease or buy your next vehicle, it makes sense to ask yourself the following questions:

 

How long do I plan to keep the vehicle? If you want to keep the car or truck longer than the term of the lease, you may be better off purchasing the vehicle as purchase contracts usually result in a lower overall cost of ownership.

 

How much am I going to drive the vehicle? If you are an outside salesperson and you drive 30,000 miles per year, any benefits you may have gained upfront by leasing will surely be lost in the end to excess mileage charges. Most lease contracts include mileage of between 12,000-15,000 per year - any miles driven in excess of the limit are subject to some pretty hefty charges.

 

How expensive of a vehicle do I want? If you can really only afford monthly payments on a Honda Civic but you've got your eye on a Lexus, you may want to consider leasing. Leasing usually results in lower upfront fees in the form of lower down payments and deferred sales tax, in addition to lower monthly payments. This combination can make it easier for you to get into the car of your dreams.

 

If you have any questions about the tax ramifications regarding buying vs. leasing an automobile or would like some additional information when making your decision, please contact the office.