LEASE OR BUY PART IV: THE FINAL TEST
If what you've read so far in this not-so-mini-series on leasing versus outright purchase has
piqued your curiosity and you think leasing might be for you, then be sure and read this column
because there are a few more critical factors you should consider.
MILEAGE ALLOWANCES
The leasing company normally allows about 15,000 miles per year in a standard lease. Know in
advance what your mileage allowance will be because you will typically pay 10 cents a mile for
excess mileage at the end of the lease. If, for example, you drove the car 60,000 miles in three
years instead of the 45,000 allowed, you'd be hit with a lump sum payment of $1500 when you turn
the car in. Ouch.
Mileage allowances are negotiable and if you think you'll exceed what is offered, have the excess factored into the lease so that you pay for it monthly rather than all at the end.
UP FRONT PAYMENTS
Don't let the low monthly payment blind you to the up front money typically required. This
might include one month in advance, a security deposit of one month, insurance, taxes and fees
in some cases and the earlier-mentioned Cap Cost Reduction, the leasing version of the down
payment. Together these can add up to a lot more than chump change.
MAINTENANCE
There will most likely be an "excess wear and tear" clause in your contract. You can imagine
how difficult this is to define so you better be prepared to take care of this car you don't
own. A small percentage of lessee's get a nasty bill for repairs at the end of their leases.
EARLY TERMINATION
Baaad Wooords. If the car depreciates 25% in the first year, 15% in the second and 10% in the
third for a total of 10%, yet you are paying level monthly payments, then you are "under-paying"
in the beginning and making it up in the end of the lease. But, if you should decide to bail out
early who is going to take the hit? The leasing company? Dream on. So check your contract for
early termination penalties. They are scary and you had best know in advance what you face if
the honeymoon glow quickly fades.
BUSINESS USE
The best use of leasing is for those who use the vehicle heavily for business. First, as we
have seen, leasing frees up cash that may be better used for other business purposes. Second,
when it comes to deducting auto expenses for tax purposes, leasing is much less complicated than
owning/depreciating/itemizing. But the IRS is not stupid. They do not intend for you to get any
planned financial advantage from leasing over owning and they have written rules to attempt to
equalize their tax revenue from either form. However, only you and your accountant can know if
there is some way to play those rules in your favor. Deponent sayeth no more.
THE TRUE TEST
If you agree with most of the following statements, leasing could be appropriate for you: I can
rely on my income being stable for the duration of the lease. My credit is solid. I can put the
cash that leasing frees up to better use. I'm more interested in low monthly payments than in
the lowest overall operating cost. I long for a new car every 2-3 years and I don't mind paying
for rapid depreciation. Having less maintenance hassle is worth any premium I may pay for
leasing the car. I can charge the majority of the mileage to business. I can keep the car in
good condition. I get no kick from making the last car payment.
If this shoe fits, strap it on and shop til you drop. Manufacturers and dealers are looking for you with more and better leasing deals than ever before and you can certainly find one tailored to your particular circumstances. You could call it a new lease on life.
Or perhaps, the least you could do.
David Thompson is President
of Auto Testers, Inc., publishers of The New Driver Car Control
Clinic, a program to help parents make
their new drivers safer drivers.
Questions should be addressed to info@carcontrol.com or:
The Auto Advisor
P.O. Box 99466
Raleigh, NC 27624
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