Lease vs. Buy

This is quite a decision to make what with all the 0% financing and incentives offered by the auto manufacturers. But, depending on your circumstance, the choice should be easy.

On the one hand, we have "THE LEASE". More car, less money. Or, more car, same money.

On the other hand we have our old favorite "BUY". Good old reliable buy. Buy it, own it, keep it, love it.

Why, you may ask, have so many people, who have bought vehicles for years, suddenly switched to leasing?

Let us look at a comparisons of Leasing and Buying for the answer. Some reasons will be tangible. Other more emotional. But, all are valid.

 

Leasing

Buying

Purchase Price

The purchase price, whether to lease or to buy a vehicle, is the same. Leasing is a method of financing the vehicle, so don't be confused, or mislead into believing that you cannot negotiate the price on a lease in the same way that you did on a buy. When and "if" a salesperson tells you that the price to lease a car doesn't matter, because you are buying a payment, not a car, WATCH OUT! All sorts of alarms should be going off in your head.

Down Payment

There typically is no down payment, per se, on a lease, unless you choose to make one. See cap reduction in glossary. The down payment on a lease is referred to as a cap reduction and may be a requirement of the lessor under some special lease offer programs. Even this is negotiable.

When buying a vehicle, the lending bank or credit union usually requires that you create equity in the vehicle by a cash or trade downpayment. In the event that you default on the loan or suffer a total loss due to theft or accident the bank is not on the hook with a loan larger than the worth of the collateral (the vehicle). This is not always the case and many lenders now off no money down loans which are comparable in startup cost to a lease. This, and all premium loan types are based on your good credit. The difference will always be that with a loan you are purchasing the entire vehicle, whereas in a lease you only rent the part that you will use. (We will go into more detail on this point later.)

Equity

If there is equity in the car at the time you decide to dispose of it, you may sell the car and realize any equity there is.

 Once again, you own. This is where you get the sweet with the bitter.

Insurance

Typically high limits are requested, but most people these days carry these higher limits on vehicles they purchase as well.

 Governed by State minimums, and lender requirements of financed.

Ownership

 You rented it, or if you want to split hairs, you leased it. You don't own it. That's why you leased the car, so you wouldn't own it.

 Yes, you own it. I might remind of you of this later.

Mileage

At the inception of the lease you and the lessor determine how many miles you will be allowed to drive without incurring a penalty. The standard allowances are 10,000, 12,000, or 15,000 miles. Remember, this penalty only applies if you return the vehicle to the lessor at the end of the lease. If you trade the car no such penalties are applied.

It's your baby. Put as many miles on it as you want. But remember, the same deduction for excessive miles that the leasing company charges the lessee applies to the buyer also. You just take it out of your own pocket instead of the leasing company doing it for you.

Wear and Tear

 To some extent normal wear and tear are covered in your lease. The depends more on the make of car than on the leasing company. Factory owned leasing sources tend to be more lenient than commercial banks or private leasing companies. The reason being they want to lease you another car. I'll give you an example. Mercedes Benz will send the lessee an "end of lease" package to prepare for the termination of their lease. Within this package is a small card the size of a credit card. If you can cover any scratch or dent on your car with this card you will not be charged for it. By comparison, if you can cover a dent or scratch on your "owned" car, you will likely end up using that credit card to pay for the repair of that dent or scratch.

 It's all yours. You are the owner of the vehicle and assume all responsibility for dents, dings, scratches, etc.

IRS, Expensing, Etc.

In the chapter on IRS in this guide I indicate that I like to steer clear of this subject, but since this information is readily available to anyone who can read of Tax Guide, here goes.

This is a trick. Contact your accountant on all tax matters, PLEASE!

Ditto

 

 

 

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