If you prefer driving a new car every few years and don't mind an ongoing monthly payment, then leasing may be for you. Other than Bankrate.com's warnings to be aware of leasing mileage restrictions and the need to keep the car's condition as close to original as possible to avoid penalties when you return it, there are many pros to leasing a car.
Leasing is a great option for many people, but gather as much information as possible before you make the financial commitment.
Up Front Costs
LeaseGuide.com notes that one of the most significant pros of leasing a car is the low down payment. Most dealers require only the first month's payment at the time you pick up your leased vehicle; in effect, you pay for your lease one-month in advance. Some states may require that you pay state sales tax on the vehicle's value in advance, as well; others allow sales tax on the monthly payments to be rolled into the financing arrangement. Check with your dealership or your tax adviser to understand your state's requirements before leasing.
Payments
The Federal Reserve Board notes that with leasing, you'll have lower monthly payments because you pay only for the portion of the car's value that you use during the lease, plus interest and sales tax. You can drive more car for the same payment each month, or save money on driving the same car as you would have purchased.
Also, because dealers want your leased vehicle returned in very good condition to maintain its resale value, they might offer lower payments if you commit to drive fewer miles each year. On the other hand, you can negotiate a slightly higher payment if you need to drive more miles than their average.
Repairs and Maintenance
As vehicles age, they require more care. But most cars will still be under the manufacturer's warranty when your lease expires in two to three years, leaving the cost of most repairs during this period with the manufacturer. Your dealership might also roll the cost of regular maintenance, such as oil changes, into your lease.
Depreciation
Leasing offers an advantage over buying because at the end of the lease, you turn the car in and shop for a new one. There's no haggling with potential buyers or with a car dealer over the depreciated value of the vehicle. The leasing dealership bears the risk of resale value at the end of your lease, leaving you free and clear to make a new decision on leasing versus buying your next car.
Tax Advantages
Another pro of leasing a car is that tax law permits businesses to deduct monthly lease payments as a business expense. Purchased vehicles must be capitalized and depreciated over the vehicle's useful life, resulting in a longer tax impact.
Individuals benefit as well, simply because they don't pay as much sales tax on a lease in most states. Check with your tax accountant to understand the implications for your situation.
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