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Lease or Buy

Meadow with Pine Trees and Blue Skies

Advantages of Leasing

  • Similiar to renting a home, a person pays for the use of the home or vehicle. They do not build any equity. Those who favor leasing believe it makes sense to lease items that decrease in value and purchase items that increase in value. Most vehicles depreciate as they get older.
  • Most leases do not require large down payments. A person may get into a lease for little money up front.
  • Since payments are based on the "use" of the vehicle, monthly payments are frequently smaller when leasing a vehicle.
  • The difference between a lower lease payment and a higher purchase payment can be put into a savings account or invested.
  • A person could drive a new vehicle every 2-5 years, since most leases are 24-60 months long
  • At the end of the lease, the lessee has the option of turning in the vehicle or purchasing it.
  • Leasing offers minor tax advantages to individuals: Sales tax is paid monthly as part of the lease payment and is based on the lease payment amount, versus sales tax, which is paid up front on the full purchase price on a purchased vehicle.

 

Disadvantages of Leasing

  • Payments are made to use a vehicle that the lessee does not own.
  • Leasing a car may require a higher credit rating than purchasing a car.
  • The value of lower lease payments diminishes the longer a person leases a car. It may be better to purchase a car if it is going to be kept for five or more years.
  • Lease contracts frequently include penalties for each mile driven over the contract amount.
  • The lessee is frequently responsible for "excessive wear and tear" at the end of a lease. The lessor may be the one who determines "excessive wear and tear". Examples could be bald tires, lost trim, cracked glass, or worn seats.
  • Early termination of a lease may result in a substantial penalty.
  • End of lease "disposal fees" or other similar fees may be charged to the lessee.

 

Before Signing the Lease

Make sure that you have received, in writing, everything that you negotiated before you sign the lease contract. Read and understand all the terms of the lease before signing the contract.