Adapted from cars.com
If you’re someone who likes a new car every few years, leasing might be for you. With leasing, your monthly payments give you rights to drive the car. Your car will likely always be under warranty, so any nasty mechanical problems should be covered. Also, monthly lease payments are typically cheaper than monthly payments for a car that you’re buying outright.
In addition, lease payments can be deducted from your taxes if you use your car for business more than 50 percent of the time; check with your accountant for details. There are also tax deductions for financing a business vehicle, but they’re not as great as lease deductions, especially for more expensive vehicles. That’s because you can deduct a certain percentage of your lease payments no matter how high those payments are. Deductions for a financed car have limits.
Experts say that people who lease typically drive away without making a down payment, whereas financing typically requires a 10 percent to 15 percent down payment. Also, you won’t ever have to worry about selling or trading in the car when you’re done: Just return it to your dealer.
On the downside, once you return the car you have no equity left, and you’ll have to start over, leasing or buying a new one. Frequently, if you liked your leased vehicle, you can pay off its remaining value, but that can cost a lot.
Leasing companies set your lease payments based on the car’s residual value, which is the value that the firm believes your car will have when the lease ends. Those are often higher than what the car is actually worth on the market, experts say, so you should beware.
For many leases, the annual mileage allotment on a leased vehicle is typically limited to a range of 10,000 to 15,000 miles a year, so make sure you know your driving habits before committing. Exceeding the limit typically results in stiff fines, so if you drive more than 15,000 miles a year leasing probably won’t make economic sense.
Additionally, a lease agreement may also require you to carry more than basic car insurance; lessors (like finance companies) usually want you to have a comprehensive policy.
Lease payments allow for basic wear and tear, but if there are any scrapes or excessive wear on your leased vehicle, you’ll have to pay for those fixes yourself. If you fail to do so before the lease ends, penalties await you. Leases usually forbid any sort of vehicle modification, so if you’re dead set on installing fancy 20-inch wheels or a 1,000-watt stereo, leasing isn’t a good option for you.
See the Fed’s Vehicle Leasing