Thelen Chrysler Dodge Jeep Ram

Feb 3, 2018

Leasing: What’s right for you?

Both leasing and buying have advantages and disadvantages, just like renting versus buying a house. Choosing to buy or lease a car depends on your situation; and, everyone’s situation is different. So, what makes sense for you?

Buying, borrowing, leasing

There are three main ways to go: paying cash, taking out a loan, and leasing. So, what’s the best choice? Obviously, paying cash is ideal, but it’s not usually an option as vehicles continue to get more expensive.

Leasing used to be confined to corporate and luxury cars, but now it’s available for just about any car, van, or truck. Today, one-third of cars are leased.

Leasing is always an option to consider and comes with a number of perks. These include:

  • No negative equity at the end
  • You don’t own a vehicle until it’s paid off anyway
  • You will most likely pay cheaper business taxes
  • The car is always under warranty
  • You can save money if you always drive new cars

Leasing Options

Leases are available for vehicles spanning a wide price range. Talk to us about what car you had in mind and your preferred monthly payment, and we can start to make a plan depending on your needs.

No negative equity at the end

Buyer beware

When you buy a new car, you take on the risk of market fluctuations in your car’s sale or trade-in value.

Predicting the future

With leasing, the future value is laid out. If the car’s value is less than the determined amount at the end of the lease, you’re not under water. You’ll never own more on the car than what it’s worth.

You don’t own a vehicle until it’s paid off

You don’t own your car or truck until you’ve made the last payment. Sometimes it’s helpful to think less about who owns the car and more about how much utility you’ll get out of the car over a specified timeframe.

Pay cheaper taxes

Driving for business

When you lease, a portion of the car’s depreciation and financing is tax deductible. Consult the IRS’s website for how to calculate tax deductions.

Always under warranty

Leases are predictable

Leases are great for paying a predictable amount per month. This allows you to better plan your budget. Many leases last for three years, which is the length of the typical manufacturer’s warranty for a new car. This means unexpected repairs during the lease are usually not up to you to pay. However, you are required to get your own oil changes, tire rotations, and other maintenance. This is important and shouldn’t be overlooked, as neglecting proper upkeep can result in fees at the end of your lease.

You can save money if you always drive new cars

You’re always driving a new car

If you enjoy having the latest car model, leasing allows you to do just that. Every three years you can switch to a new model. You also don’t have to go through the process of selling a car to accomplish this.

If you pay $300 on a lease instead of $500 to buy, in three years you save $7,200 in payments. If in three years you try to trade in that same car, you won’t have that much equity in the vehicle. While car loans are more common, leasing usually allows drivers access to a more expensive vehicle than if they took out a loan.

F&I Products (Finance and insurance products) that make sense for a lease

Whether you have perfect credit, or have room for improvement, our finance department can help you finance your vehicle and get you on the road!

Benefits of leasing a car

When you purchase a car, the loan value is based on the entire cost of the vehicle minus your down payment and trade-in value.

Buying a car:

(cost of vehicle) – (down payment) = what you pay

When leasing, you only finance the depreciation that occurs during the lease term (most commonly three years) plus fees. You only pay the difference between the car’s current price and what the car is expected to be worth at the end of the lease, known as its residual value.

Leasing a car:

(car depreciation) + (fees) = what you pay

This means that, unless you have a large down payment, your monthly payment is mostly likely going to be a lower monthly payment.

For example:

A car costs $30,000

You put down 10 percent ($3,000)

You finance $27,000

The lease’s predetermined residual value is 55 percent ($16,500)

In this example, you’d only make payments on the $13,500 worth of expected use.

No down payment (often) needed

If you don’t have much money saved up, leasing might be a good option. Car leases require zero to several thousand dollars down. Many of the better leasing deals offer low monthly payments, but a high down payment.

Money down

When buying, many lenders require 10 to 20 percent down. Loans that stretch payments over eight years increase the overall cost. Interest rates on long-term loans themselves tend to be higher as well. The benefits of leasing are numerous; however, there are some drawbacks that you should be aware of if you are to make an informed decision.

Drawbacks of leasing

Going the extra mile

Leasing isn’t for everyone. If you log a lot of miles on your car you might exceed the allotted amount in your contract, which is usually 9,000 to 15,000 miles per year, with 12,000 being the most common.

Do the math to figure out your commute to work and the other places you go. Or, keep a driving diary for a month to track your miles so you know ahead of time what your pattern of mileage is. If you just drive locally to work and the grocery store, leasing could be a good option. If you have a long commute and go on road trips often, then not so much.

If you exceed your allotted number of miles, you will need to pay a fee at turn-in. Your lease might impose a 20-cent-per-mile fee for miles over maximum, which can add up fast.

Equity

Another drawback with leasing is you’re basically renting the car, meaning at the end of the lease you won’t have built up any equity in the car.

Benefits of buying

If you keep your vehicle a long time buying is better. When you pay off the loan you own the car outright. Throughout the loan, you gain equity in the car so long as payments outpace depreciation.

You can also rack up as many miles on your car as you want without penalty (well, the car will eventually wear out, but you know what I mean!).

Straight sailing (or driving!)

Car loans are straightforward. You borrow money from acreditor, make monthly payments, made up of interest and principle, for a set number of years. You build equity until you own the car outright.

What’s to like about leasing

Monthly payments are lower because you’re not paying principal. You pay the amount that the car depreciates during the time you have it plus finance charges.

Car damage

If you get scratches or dents you face steep wear-and-tear fees (typically limited three months’ worth of lease payments).

Bottom line?

Run the numbers for your situation. Your decision comes down to you.

Taking out a car loan and keeping the car for as long as it runs is the best way (and the most cost efficient way) to go for most people. Leasing is good for people who either can’t afford the monthly payments of a car loan or want the convenience of driving a new car that’s unlikely to need to be in the repair shop.

Links:

https://cars.usnews.com/cars-trucks/buying-vs-leasing

https://www.consumerreports.org/buying-a-car/pros-and-cons-of-car-leasing/

https://lifehacker.com/5858640/should-i-buy-or-lease-a-car

https://www.irs.gov/publications/p463#en_US_2010_publink100034045