Do your neighbours seem to purchase a brand new vehicles every three or four years? Perhaps you’re wondering if they won the lottery and didn’t tell you. Or, they could have decided that leasing a new vehicle is the best option for them.

Leasing a vehicle is not much different than renting or leasing anything else: You pay for the use of whatever you’re leasing or renting instead of outright purchasing it. Like anything else, there are advantages and disadvantages to both leasing and ownership and you’ll have to look at your own circumstances to decide what’s best for you.

If you’re a business owner, for a variety of reasons including tax codes, leasing a fleet of vehicles may be more advantageous in the long run than outright purchasing vehicles. Let’s take a look at what leasing a vehicle could mean for you and discuss some of the disadvantages and advantages of vehicle leasing:

When you purchase a new car and can’t pay cash up front, you will need to have financing. Financing a new car may require a hefty downpayment that is higher than the deposit a leasor will make on a vehicle. As well, purchasing a new vehicle makes that vehicle subject to higher sales taxes payable right at the beginning of the transaction whereas leasing, if it is subject to sales tax are more likely to be charged over the term of the lease agreement.

The terms of the lease are based upon projected depreciation values of the vehicle, and therefore the lease payments may also be lower than the monthly payments if the car was purchased outright with financing.

At the end of the lease period, you may have the option to purchase the vehicle for it’s depreciated value, which you will probably be able to choose to pay for outright or finance.

And that is one of the drawbacks of leasing: You will always have a car payment to make every month, unless you purchase the vehicle at the end of the lease period with cash.

Another drawback of leasing is that most leases restrict the number of miles you can put on a vehicle annually. If you exceed that (usually between twelve and fifteen thousand miles), you will be charged a penalty at the end of the lease period.

There are two types of leases: A closed-ended lease and an open-ended lease. If you’ve chosen a closed-ended lease, at the end of the lease period, you walk away from the vehicle and pay only any penalties you owe for extra mileage or damage sustained. An open-ended lease allows you the option to purchase the vehicle at the end of the period for the pre-determined depreciated value.

If you need to terminate the lease prior to the end of either type of leasing period, you will also be assessed further penalties as well.

In summary, there are some advantages to leasing a vehicle including lower monthly payments. If you don’t mind making a car payment every month, and want to drive a new car every three to four years, leasing may be exactly what you want to do. As well, if you own a business you might want to sit down and discuss tax pros and cons of writing off leasing costs vs. writing off depreciation. Your own circumstances might dictate what is best for you.

Tags: auto leasing, automobile leasing, car lease, leasing a car

This entry was posted on Friday, December 19th, 2008 at 9:36 pm and is filed under Leasing a Car. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.