What are the Benefits of Leasing?
Have you seen or heard commercials about a car you always wanted but thought you couldn't afford? The commercial describes the car of your dreams and then, surprisingly, offers affordable payments within your budget. This is how millions of Americans are introduced to the number one benefit of leasing: the ability to drive a new car with low monthly payments.
Leasing is as easy as buying and its popularity is skyrocketing. Some people hear the commercials and think the deal is too good to be true. However, leasing is a safe, affordable alternative to buying a car. The reason monthly lease payments are almost half the monthly payment of a purchased car is simple. You only pay for the car while you are using it. You have the option to purchase it after the lease is up, but you aren't obligated to do so.
An Basic Example of How Leasing Works
You are looking at a car with a purchase price of $20,000 dollars, and decide to lease it for 3 years. The car dealer tells you the estimated value of the car in 3 years is $15,000 dollars.
The cost of the lease will essentially be the difference between the original cost and the residual value of the car after the lease is up, plus finance charges and some fees. This number is broken into monthly payments much lower than if you were purchasing the same car. The number is lower because instead of getting a loan on the full purchase price of 20,000 dollars you only take a loan on the price loss during the length of the lease.
Leasing Benefits vs. Buying Benefits
Tax Benefits - When you purchase a car you have to pay all of the sales tax for the vehicle up front. Leasing allows you to pay for sales tax in payments. Leasing is typically a tax write off, if the car is used for business.
Payment Benefits - Leasing payments are often lower than payments for a car you purchase.
Insurance Benefits - If you purchase a car and something happens to it soon after buying it, insurance considers the car used and values it accordingly. If you lease a car you are covered by Guaranteed Auto Insurance (GAP) which provides scaled coverage protection for theft or damage.
Term Benefits - Leasing allows you to get a new car more often than purchasing. Since there is no long term commitment you aren't locked into one car for a long period of time. If you know you will want to drive the car for many years, purchasing could be more beneficial.
Cash Benefits - When you purchase a car you tie up large amounts of money for a long period of time. When leasing you can invest the money you are saving. On the other hand buying does eventually result in equity while leasing does not.
Repair Benefits - To retain value for a purchased car you must keep it in excellent repair. Additionally, you are totally responsible for repairs after the warranty expires. When leasing, the car typically under warranty for the entire time you possess the vehicle.
Who Benefits from a Lease?
How do you know if a lease is for you? It depends on what kind of driver you are, how you like to maintain your vehicles and your financial situation. Leasing could be beneficial if you answer yes to most of these questions:
- Would you like to drive a better car than you can afford to purchase now?
- Do you like to drive a new car every 3 or 4 years?
- Do you keep your car in good repair and do regular maintenance on your vehicle, even when nothing is wrong?
- Are you used to keeping your car looking like new?
- Are you a careful driver that isn't "hard" on your vehicles?
- Do you know you can keep your car for a pre-determined amount of time?
- Is a large down payment hard for you to get together?
- Do you have good credit?
- Are you self-employed so you can write off expenses of a car?
If you answered yes to most of these questions leasing could be beneficial for you. Before purchasing another car, educate yourself about leasing requirements and the leasing process. You might find leasing to be a beneficial alternative to buying. MyAutoloan.com has great tools to help you discover how much money you could save by leasing instead of buying.