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Should You Lease a Car?

Should You Lease a Car?

Although there are many financial implications in deciding on whether to lease or buy a car, money should not be your only factor to consider before you pull the trigger.

In addition to the monetary factors, your lifestyle, personal taste and your credit score should also play a big role when deciding whether to lease or buy a car. To lease or buy a car is a decision wholly guided by your goals, personal preferences, and budget. The processes have their benefits – the key is to define which matter the most.

Before starting a search for your next vehicle, always take your time to determine what you want from it, and let these factors drive your whole decision-making process.

Also, small businesses have different tax advantages at their disposal, including business deductions. One of these deductions is directly related to business cars in regard to their monthly lease payments or loan payments. Some business owners have cars wholly dedicated to their personal use while others use their cars in their businesses. You, as a business owner, have the power to take the option that suits you best in regards owned or leased vehicle.

Remember, in terms of car insurance, premiums are favorable when you buy a car as opposed to lease deals, but the monthly loan payments are higher. On the other hand, when you buy a car, be sure of a huge down payment.

This article will discuss the two sides of the lease or buy debate and help you decide which option is best for you.

Monthly Loan Payments Versus Monthly Lease Payments

When you decide to buy a car, you take an auto loan for a specific amount that you have to service even if the value of the car depreciates below the loan value. For instance, if the car is involved in an accident, its value goes below its purchase amount. On the other hand, with lease deals, the residue value when the lease term or lease contract elapses, lowers the cost of the lease. Additionally, if you had a closed lease, you can get away with the penalty.

Remember that to get car tax benefits, you must prove that the car has been driven at least 50% for business purposes. Also, only the business driving portion of the buying or leasing cost will be deducted as an enterprise expense.

Buying Versus Leasing a Car for Business

Below are some comparisons or factors you should know when choosing how to finance a car for your business.

  • Ownership

Car ownership is a factor to consider when acquiring a new car because tax benefits are different between individuals and business cars. A leased car will typically attract no tax benefits, but a wholly-owned vehicle will attract depreciation deductions. Note that, depreciation is a deductible expense from the car cost that is spread over the car’s usable lifetime. Accelerated depreciation can also be present for business vehicles, these will increase the amount of deductible expenses. Before you acquire an auto loan to finance your car, your credit score will play a big role.

  • Initial Cost

The upfront cost when you lease or buy a car is different in terms of down payments versus the first monthly payments or security deposit. Thus, you should consider these on a case-by-case basis.

  • Mileage Limits

You can deduct the mileage costs for both leased or purchased cars in regard to monthly payments. Higher mileage limits for owned cars can adversely reduce their resale value. Lease contract include mileage limits too. You are given a mileage limit that you can be penalized in case you exceed.

  • Wear and Tear

Excessive wear and tear on a car that you own can decrease the resale value for your vehicle. These include all the little wear and tear that is visible on the body of the vehicle. When you have leased a car, excessive wear and tear attract some charges.

  • End of the Term

When you have fully purchased your vehicle, (having fully serviced your monthly cost or in the process), you can do what you want with the same. Remember to acquire a gap insurance for your car in case an accident occurs before you finalize your loan payment. But with lease deals, you can decide to return it to the owner or buy it when the lease contract expires. Your dealer may give you the option of leasing another car.

Which Option is Favorable – Buying or Leasing?

The monthly loan payments and lease payments that accrue when you lease or buy a car is a big factor to consider. Remember that the monthly cost of buying is higher than the monthly cost of leasing because the latter does not include the vehicle’s purchase price or cost.

Why should you Lease a Car?

Do you wish to lease a car and don’t know how to go about things? Here are the advantages that come with leasing a car.

  • Low Monthly Payments

It is a fact that the monthly payment of leasing a car is lower than buying one. There’s little or even no down payment that is required. Also, no upfront sales taxes that you are required to pay. But you may be required to pay some extra cost in addition to the lease payments when you return a leased vehicle if you exceed the mileage limit, introduced excessive wear and tear, or you have terminated the lease contract earlier than stated. However, you will not be required to go for auto loans to finance a car for your upfront car payments as the monthly payments are manageable.

  • The Amount Payable is only Tied on the Depreciation

When you enter into vehicle lease deals, you have rented the car for a fixed term (lease term). The monthly lease payments that you pay is calculated on the expected monthly depreciation from the leased vehicle (remember, different models, come with different rates). You are only responsible for the depreciation that occurs during your car’s lease term ensuring that at no occasion will you be “upside-down”. An upside-down situation is when you as the car owner owe more than the value of the vehicle.

  • Few Repair Expenses

Some manufacturers extend warranties to the car leasers. If you are covered by this type of warranty, you will always be at ease and never worry about unexpected repair bills occurring from the car’s wear and tear. But you are sorely responsible for the daily car upkeep including maintenance, and the amount of car insurance. Besides, unless you incur excessive wear and tear, you do not worry about any wear and tear cost of a leased car.

  • Often Drive a New Car

When you lease a car each year, you will always enjoy the benefits of driving up to date leased vehicle with more and more advanced technology, safety, and comfort, but at a fee—the monthly payments throughout your lease term.

  • No Hustle of Reselling the Vehicle

Once lease deals are closed, or the lease term has expired, you can return the vehicle or start a lease deals with a different car. You forget about the car you had and the hustles of getting a fair trade-in value. You may also have the option of buying the vehicle if the purchase price is fair according to the way you used the vehicle. You have all the car’s information to make an informed decision about the vehicle’s current purchase price.

  • No Loan Approval is Required

If your credit scores are not impressive, you may not be approved for an auto loan or you may be required to pay an exaggerated car loan interest. The lease contract will not be that strict to your credit score status when leasing cars as they can easily recover their vehicle if you violate the lease contract by either failing to pay the monthly lease payment among others.

Advantages of Buying a Car

The monthly car loan payments are largely higher than the monthly lease payments. But with every month’s loan payment, you go a step near to owning the vehicle and you can build future equity when you decide to trade it in or resell the car. Buying and owning the car and driving it for a long period is the cheapest way of owning a car. The longer the period you drive the car, the less it cost. But if you choose to acquire gap insurance, then you will cater for these expenses.

  • You have the Option of Reselling your Car

When you buy the car, you are the owner and you have the full flexibility of reselling or trading it in. You are not locked into any ownership period (lease term) like it is with a leased vehicle. You are always aware of your car’s purchase price meaning you can trade it in at you will.

  • No Mileage Limits

As a car owner, you are free to drive your car as many miles as you want— no mileage limit. Should you lease a car, be sure of mileage limits and caps that attract a lot of charges when exceeded.

  • No Car Appearance Restrictions

You can choose to use your car in any condition. If you want to use your car even not in the perfect condition, then buy it. Also you can opt not to acquire a gap insurance if you are financially stable.

Bottom Line

When you finance a car you own it. On the other hand, when you lease a car you have borrowed it for a fee – simply, leasing a car is renting a car.

Should you rent a car? Should you buy a car? If yes.

Feel free to drop your comments or feedback below.