What are pros and cons of leasing versus buying?

Asked by Aug 20, 2017 at 11:02 AM

Question type: Car Selling & Trading In

1 Answer

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The first thing you have to remember about a lease is you are NOT buying the car and it is not yours. It is merely a long term rental contract allowing you use of a vehicle that does not belong to you. If you are getting a car for business leasing makes the most sense because the vehicle costs (including the payment) are considered business expenses and are deductible on federal income taxes. If the business is buying the car, it becomes considered a capital asset and thus is deductible only on a depreciation schedule which will not be as much as the lease cost. For personal use, leasing typically allows you to get into a car for less cost than buying. Less down and lower monthly payments are very attractive to many people. If you don't intend to drive the car a lot and you want to keep driving newer cars, turning them over every year to three, leasing may be an option. Cons of a personal lease include many things, but lets first start with penalties. The biggest of these is mileage penalties. Most leases have a maximum mileage you are allowed to put on the car over the length of the lease. If you turn the car in with more mileage than the contract allows, you have to pay a penalty per mile which I have seen as high as $2.25 per mile, and it is due upon termination of the lease, so upon turn in, you owe the dealer $2250 for every 1k miles over the mileage allotment. You do not get any kind of a refund if you do not hit the mileage limit of the contract. Another penalty is for vehicle damage. The penalties vary based on the type of damage, the closeout evaluator/appraiser, the dealerships own attitude towards the type of damage, the severity of damage,and what was agreed to in the contract. I have seen the security deposit forfeited for foot scuff damage to the lower door panel on higher end cars (Mercedes/BMW/Lexus) that will normally be overlooked on lower end (Sonic, Cruze, Dart) vehicles. Some contracts will not charge for damage incurred if there was a collision and the repairs are done at their shop but will hit you with a penalty if it was done at an independent facility. Scour the contract to make sure there is a schedule for collision penalties or other types of damage that may initiate penalties beyond normal forfeiture of your security deposit. Secondly, every dollar you spend on a lease is gone. You do not accrue equity in the vehicle as you would with a purchase. When purchasing a car, you will eventually cross the point where what you owe on the car is less than what it is worth and you start accruing equity in the car because it is in your name. In a lease, the car remains the physical property of the dealership so they are the ones accruing the equity in the car once it hits that payoff point. Third, if you really fall in love with the car, the "balloon" payment which allows you to purchase the vehicle at lease termination is typically higher than you can find similar cars available on the market used. But the issue there is you now know this vehicle's history and it's a crap shoot what you may be buying if you buy a different used car, provided you can find one with the exact options you have on ole Bessy. So this balloon payment requires you to provide a payoff of the car at lease termination which means you need to have money saved to make the payment or you need to find financing for a used car which typically is a higher interest rate than new car loans.

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