In this article, I will explain everything that you need to know about car leasing vs car buying. This article will detail the major pros and cons of both, and allow you to make a well-informed, educated decision about your next vehicle selection.
If you've spent any time shopping at car dealerships and have decent credit, you've probably been pitched by a car salesman about car leasing vs buying a car. From 20 years in the car business, I can tell you honestly that many people are talked into leasing and are not making their decision based on solid facts.
There is nothing wrong with a lease, per se. Leasing has it's purpose, just as some prescription blood thinners have a purpose. It's not equally recommended for everyone and can cause some people to get in water that is over their heads.
Salesman are trained to basically state Gebrauchtwagen-Ankauf, “Leasing is not the cheapest way to own a car, it's the least expensive way of driving more car for less money.” This is technically true, however, not the basis that you should be making this type of financial decision on.
Details Specific to Leasing a Vehicle:
- Requires more insurance coverage and higher insurance premiums as a result
- The title of the car is in the leasing companies name, not a lender
- If you get sued for an auto accident, the leasing company is sued and your corporation is protected
- Payments are a tax write off for the duration of the lease, if the vehicle is for a business
- You pay sales tax on your monthly payment every month based on your state sales tax rate
What happens at the end of a lease…
Open end leases: Salesmen will usually tell you that you aren't locked in, with a lease. They'll tell you, “If you put too may miles on it, you can just sell it or trade it in, rather than turning it back in to the leasing company.” While this is true with an opened end lease, which allows for those options, it's not exactly going to be that easy. As you are paying lower payments with a lease vs buying a car, you are paying less money toward principle and more money for interest charges. This means that at the end of the lease term, you will owe more money on the car than if you were buying it. This makes trading and selling the vehicle much more difficult, as you'll find that you owe much more on the vehicle than it is worth. Simple truth, regardless of what a salesman tells you.
Closed end leases: These are less common and are what gave leasing in general a very bad name back in the 1980's and early 1990's. Closed end leases only give you the option of turning the car back into the leasing company. Every ding, scratch, tire wear and mileage was billed to the customer. This made some people very, very angry about having been talked into a lease. As stated, these are less common now and most leases these days open end.
