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Auto Leasing Facts

You have decided that you want a new car, a big decision by itself. Now the even bigger decision - Should you take out a loan? Lease? or Pay Cash? There are definite pros and cons to each method of obtaining a new car,truck, or SUV. Advantage Auto Lease would like to provide you with the following so that you might make an informed choice.

Buying in Cash

Up front, full cash payments account for approximately 10% of all automobile purchases. If you pay for the cost of the entire car up front, the car is all yours - no more payments, no interest. However, can you afford that much cash out of pocket? Do you need this cash for other investments or emergencies?

Leasing vs. Buying

Initial Costs. Leasing has always had one big advantage over an auto loan: Lower initial cash expense. With a lease, there is generally a very low initial cash requirement - little or no down payment - to get you behind the wheel of your new car. If you have a limited down payment or no vehicle to trade in, leasing allows you a more reasonable payment than a loan. If you can afford a bigger down payment, your monthly payments will be reduced even more. Generally speaking, the better your credit rating is, the lower your cash requirement at the start of the lease.

With a lease, you will ordinarily be asked to pay a refundable security deposit along with your first monthly payment. Sometimes, based on credit or your option, you will pay a "capitalized cost reduction" or down payment. Just like most leasing terms, however, this can be structured to meet your needs.

Equity and Ownership. An auto lease provides you no equity. At the end of an auto lease, you do not own the car and you have no equity built up as you would if you purchased the car. However, if the car sells for more than your end of term wholesale value, the equity from the sale IS yours. With a loan to purchase a new car, you gradually build equity with every payment. You may want to consider how much you will pay to build this equity, over the course of the loan. It is possible that the car may be worth far less than what you paid for it, when the car is fully paid off. Owning a car is an asset, however, it is a continuously depreciating one. Many drivers would prefer to invest their money where the returns may be higher.

Taxes and Insurance. Most of the tax breaks that had existed at one time for purchasing a car, no longer exist. New tax breaks for leasing are available, however. In certain business situations, your down payment for a lease may be tax deductible. Please consult with your accountant for details. In most states, when you buy a car, you are required to pay all of the sales tax up front. When you lease a car, you can spread the sales or usage tax out (amortize) over the course of your lease in most cases.

Unlike buying a car, you are required to purchase higher limits of insurance when leasing, for both public liability and property damage - collision and comprehensive. However, wouldn't you protect any new car with this coverage?

Other Differences. There are potential end of lease costs such as additional wear and tear or excessive mileage that you would not incur with a loan. You may also pay a penalty for early termination of the lease. Although, because of the structure of leases, monthly lease payments can be lower than loan payments - less out of pocket every month. Lower payments could give you the luxury of additional options or a more expensive model than you could afford with a loan.

Also, consider how often you would like to drive a new car. Auto leases have shorter terms than auto loans. If you would like to drive a new car every two to three years, a lease gives you that flexibility.

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