The 7 benefits of leasing
If you're in the market for a new car (or truck), here are the seven ways you might benefit from leasing rather than buying:
Benefit 1. Lower monthly payments.
When you buy a $24,000 car, you have to pay off the entire amount, plus interest, over three to five years, depending on the term of your loan.
If you lease that car for two years, let's say you drive it 24,000 miles and the leasing company expects it to be worth $18,000 when you turn it in. You'll only pay for the $6,000 in value that you use up during the two years you have it, plus interest.
With leases, the interest rate is sometimes referred to as a finance charge, but they are basically the same thing. We'll also say you have no down payment, are being charged 6% interest and have to pay a 7% sales tax.
We won't include license fees, the cost of transferring the title, a security deposit on the lease or at any other fees -- just the monthly payments.
If you were to buy the car over four years, your monthly payment would be $603. If you were to lease it for two years, your monthly payment would be $381, or roughly 37% less.
Benefit 2. Drive a better car or truck.
Since the payments are lower you can lease a more expensive car than you could afford to buy.
Benefit 3. It's a short-term commitment.
Most leases are only two years long. If you decide you don't like your new car, or your life changes and you need a different type of car, your next ride is never far away.
Benefit 4. No trade-in troubles.
At the end of your two years you turn the keys back to the dealer and walk away. You don't have to worry about selling it or even trading it in on another model.
Benefit 5. Lower maintenance costs. Fewer hassles.
If you're always driving a car that's less than a couple of years old, odds are you'll spend little time or money getting it fixed. New cars usually need less maintenance and fewer repairs than old ones and you'll probably be covered by the manufacturer's warranty and free roadside service for as long as you have it.
Benefit 6. Possible tax breaks.
In many states you don't have to pay the sales tax for the entire car when you lease, just on the "portion" you are buying. If you're self-employed, or use your car for business, there may be other tax advantages in leasing. Check with your accountant or tax lawyer.
Benefit 7. You can always buy the car -- if you want to.
Most leases give you the option to buy the car at a set price when your lease is up. In the great majority of cases, the car is not worth as much as you'd have to pay for it, so returning it makes the most financial sense.
But if you absolutely fall in love with your car, you can extend the lease or buy it with cash or a new loan. On the rare occasion that the car is worth more than you agreed to pay for it, you can buy it, sell it and pocket the profit.