By Bradley Givens
Conventional wisdom says that leasing a car leaves you with nothing when the lease is over—so why would anyone lease? Experian Automotive reports that leasing accounted for more than 25 percent of new car financing in the first quarter of 2013, and it is a solid option under some circumstances. If you’re trying to decide whether you should buy or lease your next vehicle, take these key factors into consideration.
Leasing
Some self-employed people lease because they can write off their payments as a business expense. You can deduct mileage and other related expenses with both leased and owned cars, but there is no depreciation on leased cars, so in many cases the lessee can deduct the full business use percentage on their taxes.
Leasing has less obvious benefits, as well. Leasing enables you to drive a luxury model without requiring a significant chunk of cash upfront. Those who lease often drive more modern vehicles with higher-end safety features than those who buy. And with leasing, the monthly payments don’t fluctuate with the financial markets, which is especially tempting when interest rates on car loans are high.
Finally, lessees avoid the many repair bills that come with car ownership, and when the lease is over, they can simply walk away from the vehicle.
Buying
Many of the benefits of car ownership are abstract—it’s hard to quantify the pride of owning your own car. Probably the most obvious advantage is that those who lease never own their car, and after many years of leasing you end up with nothing to show for it.
Owning a car also gives you more flexibility concerning mileage. Since a car’s mileage affects its resale value, the average lease contains mileage limits between 10,000 and 15,000 miles a year, and the driver is charged for each mile over the limit (usually around 15 cents a mile). The average American between ages 20-34 drives about 15,000 miles a year, according to the U.S. Department of Transportation, but the average male in that age range drives almost 3,000 more miles a year. If you have a regimented commute leasing can be a great option, but for those who drive great distances frequently, leasing isn’t a good option.
Additionally, if you like to tinker with your car or add a little something extra to the engine, ownership is a better bet. Leasing doesn’t allow you to modify or change the components of the vehicle, and it often requires you to go to specific mechanics or the dealership itself for repairs or maintenance.
Furthermore, car ownership means that you can sell a car as need demands it, gift it to someone else or even drive it in a demolition derby. Your vehicle is your property and no one can tell you what to do with it, something lessees never get to experience.
Financing Options
If it looks like leasing is the better choice for you, you’re may be in luck financially, as leasing typically doesn’t require a large down payment. You’ll still need to qualify, however. If you opt to buy your own car, you’ll have to secure an auto loan—which again, you’ll have to qualify for. If you have the means, buying a vehicle outright is another option. For those looking to purchase a car who are receiving structured annuity payments, selling your annuity payments is an excellent way to collect the capital necessary to purchase a car outright and avoid finance charges.
Bradley Givens
Brad’s two loves in life are vintage motorcycles and shoes. He writes about consumer trends and shopping for a number of blogs.