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SHOULD YOU LEASE OR BUY YOUR CAR?
A lot of people were surprised to hear that I lease my vehicles. Unfortunately, there is a lot of mis-information about leasing versus buying vehicles, so hopefully I can clear some of that up for you.
You'll need to decide which of these scenarios describes you, and then proceed appropriately.
RULE #1: A car is NOT an investment. Cars are very important to Americans, but they are absolute wastes of money. With very rare exceptions, buying a new car is one of the 5 worst ways to spend money. However, we all need to travel and we all need to feel safe in our vehicle. Add in the fact that we like our cars to look good and ride well and you have a nation obsessed with their vehicles.
This doesn't mean that you have to bend over and take it every time you need a new car. The vehicle buying experience is painful enough as is for many of you, so why make it worse by getting screwed?
WHEN AND WHY BUYING A VEHICLE IS GOOD
1) If you cannot, in any way, take advantage of the tax benefits of leasing a vehicle (see below)
2) If you plan on having the vehicle for longer than the term of your contract. In other words, if you sign a deal to make payments on your vehicle for 5 years and plan to own it for 10, you'll have 5 years with no monthly car payment!
3) If you drive more than 15,000 miles per year. In this case, even if you're driving for business, you are most likely better off buying a vehicle and deducting the mileage (see your accountant)
4) Buying is good because you have so many choices. When you have made all of your payments, you own the vehicle, and therefore an asset. You can then use that vehicle as a down payment on a newer vehicle, donate the vehicle to charity, sell it at a higher price than a dealer would give you for it, or give the vehicle to a family member (like a son or daughter who just turned 16).
5) When car companies offer 0% or low financing, those deals almost always only apply to purchases and not leases. Buying means you're paying less (or no) interest.
6) When you are buying your vehicle, you decide how much insurance you carry. When you lease a vehicle, the bank tells you minimum amounts you have to carry and it always results in a higher insurance premium. (Depending on your professional situation, it is very possible that a good portion of your car insurance is tax deductible).
WHEN AND WHY LEASING A VEHICLE IS GOOD
First rule: Get a good accountant. Leasing a vehicle for tax purposes means knowing the tax laws.
Leasing is basically renting a new car from a company for 2-5 years. At the end of the lease, you either give the car back or buy it outright. As long as you haven't beaten your car up, you can usually make an even exchange (in other words, you give the car back and don't owe them anything more).
1) If you have a job that requires a good amount of traveling (not including commuting), then a leased vehicle may be right for you. In most cases, you can deduct a large portion of your monthly lease payment from your yearly tax return. For example, if you are a salesperson and use your personal car for sales calls, a lease has a lot of potential. At the end of the year, if 75% of the miles you put on your car were for work, you get to deduct 75% of the car payments you've made that year.
2) If you can't afford a big monthly car payment. Leases are a great way to get a higher quality car for a less costly monthly payment. Furthermore, you can always choose to buy the vehicle at any time by converting the lease to a loan through a bank.
3) If you own your own business and/or company, you're an idiot if you aren't leasing your vehicles. Your company should be paying for your car as part of its' business expenses long before Uncle Sam gets his cut.
4) If you have little to no money for a down payment. For the same reasons as #2, a lease is a way to get into more of a car for less money.
5) Leasing is great for people that get restless about needing a new car every 2-3 years. If you're buying, you're usually screwed at that juncture in your loan. If you're leasing, you HAVE to get a new car when the lease is up (theoretically). If you just HAVE to have a new vehicle every three years, there's no way you should be buying your cars.
The Bottom Line: Anyone who tells you that leasing is better than buying (or vice-versa) is full of shit unless they know your personal situation intimately. Too many people want to appear as though they are intelligent when it comes to finances, rather than simply be right.
Begin with the guidelines I have given you and then seek out someone you trust to help you make the final decision. Good Luck.
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