Leasing a car is similar to financing the purchase of the car in many ways, but there are some key differences.
You might be able to get more car for less money by leasing.
When you buy car, you are required to pay 100% of the value of the vehicle at time of purchase. When you lease, you only pay for the depreciation of the vehicle over the term of the lease. Because you only pay for the portion of the value of the car, your monthly lease payments are 30%-60% lower than for a purchase loan for the same car and same term. You don’t pay extra money each month to “invest” in ownership equity. With lower payments, you can get much more car under a lease than you can under a purchase arrangement.
No Down Payment
Car leasing provides the option of making no down payment, although you must still make the first month’s payment and official tag and registration fees. Some promotional lease deals require a down payment to get the deal. Best way is pay 0 due at signing.
You Drive New Car
If you enjoy having the newest high-tech features, leasing could be the better choice for you. Since you’d be leasing every few years, each new car you lease will have the latest and greatest technology and safety features.
Most vehicle lease terms run 24 or 36 months, which means that every 2-3 years you can get a new car. In contrast, most finance arrangements run 5 years or more, which means you will be in your purchased car much longer than a leased car.
No Repair Bills
Many leases last about three years, which is typically the length of many new-car bumper-to-bumper warranties. That means the car is usually covered under warranty for repairs for the duration of the lease. You will still have to cover oil changes and tire rotations, but no need to worry about big repair bills. If you’re leasing to avoid future haggling with your mechanic, make sure the lease term is shorter than or equal to the car’s bumper-to-bumper warranty.
GAP Coverage Included
All leases automatically include free “gap” protection in case your vehicle is totaled in an accident or stolen, which pays off your vehicle when insurance doesn’t cover the full loss. Loans do not generally come with automatic GAP protection and must be purchased separately.
No Worry about Selling
Finally, with a leased vehicle you don’t have to worry about selling or negotiating for a fair trade-in price. When the lease is up, you simply purchase the vehicle for the residual value or walk away.
There are other financial advantages in leasing:
If you use your car for your job, leasing payments can be written off as a business expense on your tax returns. Additionally, lease obligations don’t show up as debt on a credit report, which may be important to companies that buy multiple cars for business use.
In most states you don’t pay sales tax on the entire value of a leased vehicle as you would if you purchased. You’re only taxed on the portion of the value that you use during your lease. The tax is spread out and paid along with your monthly lease payment instead of being paid all at once.