It’s the Lease You Can Do

By Catherine Powell

Image courtesy Picpedia

When it comes to car ownership, there are good things and bad things.  Owning a car means you get to sell it somewhere down the road.  Depending on the miles, years and conditions, this can help you recoup some of the money you put into it.  It also gives you the option of driving as many miles per year as you desire.  That’s the good news.  The bad news is that you are also on the hook for everything from routine maintenance and tire replacement to the down payment and sales tax paid when you purchase the vehicle.  This leaves some motorists wondering if perhaps leasing a new car every three years makes more sense than buying.

To Lease or not to lease, that is the question.

While it’s true that leasing is a blessing for those who aren’t road warriors, it only really makes sense to lease a car if you understand all the particulars.

1.      How many miles do you drive annually? – If you are a travelling salesman, chances are leasing isn’t going to work for you.  That’s because auto leases stipulate no more than 12,000 miles per year.  After that, hefty fees kick in for every mile above the number allotted.  Some leases even limit you to 10,000 miles per year.  So, make sure you read the fine print before you lease a vehicle.

2.      Can you do a lease with no money down? -  Depending on the model you wish to lease and your credit score, you can literally drive a leased car off the lot with no money down.  You also won’t have to pay a dime in sales tax, since you technically don’t own the car.  Leasing a car is a lot like renting a car, with the exception that you will be responsible for routine maintenance, including oil changes and tire rotation.  All other maintenance should be covered under warranty for the duration of your lease, which is typically 24 or 36-months.  For luxury models, or when leasing a car to those with less than impeccable credit, expect to put a down payment of anywhere from $1,000-$5,000 down.

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3.      What happens when you turn in your leased car? – Provided you have taken good care of the vehicle, you can either lease another car or simply turn your leased car into the dealer from which you acquired it.  If there was more than simple wear and tear, you will be responsible for repairing any damage.  Plus, with some leases there is a termination fee usually equal to the monthly lease payment.  Make sure you understand the conditions and stipulations of lease termination before you drive a car off the lot, or you could be in for a shock when your lease is up.

4.      How much leased car will you get for your money? – A pleasant surprise is you usually get a lot more for your money when you lease.  That’s because the lease is based on a portion of the sticker price, since the dealer retains the right to sell the vehicle once the lease has ended.  For example, if you lease a sedan with a capitalized cost of $40,000 and a residual value of $25,000 after three years, you’re responsible for paying $15,000 plus interest and fees. (As the lessee, you have the right to purchase the vehicle for the price specified on the leasing agreement.)  What this means for many motorists is if buying the car would ordinarily cost $500 per month, you can usually lease the same vehicle for 3-years for around $300 per month with the option to buy at the end of the lease.   

5.      How will my auto insurance rates be affected? – When it comes to leasing a car, you will be required to adequately insure the vehicle.  That means carrying liability limits of $100,000 for medical expenses, $300,000 per accident and $50,000 for property damage.  You will also be required to carry collision, comprehensive and possibly gap coverage.  If you usually only carry the minimum coverage allowed by law, you should contact your insurance agent to see how much more it would cost to insure a leased car.  If the cost is going to be substantially more to insure a leased car, you need to know this beforehand.  Make sure you ask the dealer for the insurance requirements so you can talk to your insurance agent before you lease any vehicle.

6.      Can I write off a leased vehicle? – Another potential benefit of leasing a car is if you own a business, you might be able to write a leased vehicle off.   However, you need to talk to your accountant in advance to find out about the tax ramifications of leasing.  One of the things your accountant will ask you is whether you will use the vehicle strictly for business purposes, or whether you will also use it for personal use.  Just as there is no such thing as a free lunch, when it comes to satisfying the IRS rules, the only deductions are those that relate to business use of the vehicle.  If you plan on using the leased car for both business and personal use, you will not be able to write off 100% of the lease as a business expense.  You will also be required to document both business and personal mileage for the life of the lease.

Image courtesy Pixabay

7.      A leased car is never a hangar queen. – One of the biggest imponderables to owning a car is how much you will have to put into it in terms of maintenance.  As a car ages it wears out components and tires which need to be replaced from time to time.  This means that once the car payments are through and the warranty is exceeded, the maintenance costs kick in.  When you lease a car, you almost never need to pay for anything other than routine maintenance, since the warranty should cover most every other repair.  This makes it much easier to keep from busting your budget.

While leasing a vehicle isn’t for everyone, if you don’t spend an hour every day commuting to and from work and you like having a new car every three years, you might want to look into leasing as an option to purchasing.

Catherine Powell is the owner of A Plus All Florida, Insurance in Orange Park, Florida.  To find out more about saving money on all your insurance needs, check out her website at http://aplusallfloridainsuranceinc.com/