Lease Or Buy?

Deciding To Lease Or Buy

 When you are negotiating the price of your car or truck, the salesman may, at some point, suggest that you lease your new vehicle. More and more customers are leasing these days, largely because the salesman can make it sound so attractive. So let’s take a closer look at what leasing is really all about.

In a lease, the dealership sells the car to a bank or finance company. Then, you rent that car from that bank for a specified period of time, usually two, three or four years. At the end of the lease, you have a choice: you can either return the vehicle to the bank or, after paying certain fees, walk away clean – or you can buy the vehicle outright and own it. The salesman will tell you that the advantage to leasing is that your monthly payments will be much lower than if you bought the car, your down payment will be much lower, and best of all, you can drive a brand-new car every two or three years.

There are several traps to leasing, however, and it often turns out to be a lot less wonderful than you’re led to believe.

Here are eight reasons why leasing may not be right for you:

 

  1. There may be a penalty for excessive mileage.  You may be charged fifteen to twenty five cents for every mile you drive over a pre-set limit, usually 10,000 to 15,000 miles per year. If you drive a lot, this can get very expensive. In a metro area count on 15,000 to 18,000 minimum miles per year.
  2. You need good credit to lease. It’s not always that easy to qualify.
  3. Your lease payments may not be that much lower than if you bought the car.  The savings may not be as great as the person will lead you to believe.  This is particularly true on a four or five year lease. Check on low online financing options.
  4. The lease payments they quote you may not include sales tax.  If not, then the sales tax will be added to each monthly payment.  The result is that your actual payments will be higher than what they told you. Also if you decide to buy the vehicle at the end of the lease you will pay taxes again on the balance.
  5. You will have to get extensive auto insurance.  The bank will probably require you to purchase auto insurance coverage with much higher limits and a lower deductible than you would need if you bought the car.  That can get expensive.
  6. You are required to maintain the car as if you owned it.  You must pay for oil changes, tune-ups, brakes, tires, hoses and other repairs for a car that you do not own. Some dealers advertise they will pay for these expenses. But as you know there are always extra charges built into the price of the vehicle to cover these expenses.
  7. There may be a hefty return fee at the end of the lease.  It can cost you hundreds, even thousands, of dollars just to return the car back at the termination of the lease.
  8. Leases are difficult to terminate early.  The salesman may tell you that it is very easy to end the lease early if you care to. In reality, it can be very expensive to terminate a lease before it has expired.  As a matter of fact, there are lots of customers driving leased cars that they don’t want but can’t afford to return to the bank. (Ex. A spouse dies and now you have an extra vehicle)

 

Leasing can, however, be a smart thing to do under certain circumstances.

 Here are the three situations in which a lease should seriously be considered as a good idea:

  1. You know you will be keeping your new vehicle for only two or three years.
  2. If so, Leasing can be a good way to do this without tying up a lot of your cash.

  3. The car manufacturer is offering a “lease special”. From time to time, the various car manufacturers will sponsor advertised “lease specials” on certain vehicles, featuring low monthly payments and low down payment.  These offers are often a good deal.  To see if there is a factory-sponsored “lease special” currently offered for the car you want, call the manufacturer direct or visit their web site.
  4. Your accountant advises you to lease. He’ll be able to tell you if leasing makes economic sense for your particular situation and if you’re eligible to receive certain tax deductions and other benefits for leasing.

If none of these three situations applies to you, then you should probably avoid leasing.