Posted by Neil

If you have read any of my blatherings for any length of time, then you already know that I am big on actually owning stuff. Being beholden to another in any way, shape or form is a form of slavery and that has never sat well with me.I have never leased a car, but then I also do my own oil changes, tire rotations and many of my own repairs while following my owners manual maintenance schedule RELIGIOUSLY. I probably take better care of my car’s needs better than most, thus I probably get more out of owning my vehicle than the average car owner.

That stated, I can understand the point of view (partially) of leasing a vehicle. If you need to have a really nice car for your business, driving around upscale clients or just for the sake of your business’ outward appearance (showing up at a function in a dented rust-bucket doesn’t exactly instill confidence in your potential clients that you are capable of producing top-dollar for them) , then leasing could make sense.

Leasing usually carries a very low down payment and you only pay the depreciation on the vehicle rather than its full value and you don’t have to deal with selling the car once you are finished with it, just drive back to the dealer and exchange it for a brand new car under a new agreement. Also, you can write off more depreciation from a lease as well as some of the financing on your taxes. You cannot write off financing if you purchase.

However, if you drive over your allowed mileage (usually 12,000 to 15,000 miles per year) you will usually be charged an additional 15 cents or so per mile! If you foresee yourself driving more than that, it is advisable to purchase extra mileage upfront which you can most always get at a reduced rate (usually around 10 cents per mile). Also, any damage beyond “normal wear and tear” is your responsibility and you will have to pay for it. Want out of the lease early? Count on a big penalty that makes cell phone companies look like saints!

What about insurance? - Should the car be stolen, your insurance will usually only reimburse you for the market value of the car which might not cover what is still owed on the lease. Gap coverage may be purchased to cover for this and some leasing agreements include it as well.

The big questions you need to ask yourself are -
How often do you need a new car and how much do you drive?

The bulk of a new car’s depreciation happens within the first 5,000 - 10,000 miles, so if you can buy a good used car with fairly low-mileage, you can save a lot of money right there. I personally drive about 50,000 miles per year so leasing would be very inadvisable for someone like me and I couldn’t care less how “new” my car is because I don’t need to impress anyone with my car.

As far as financing goes, although you are quoted a small percentage rate on your financing, it is calculated in a different way than let’s say a credit card rate. When I financed my car, it was about 6%, but they took mainly interest at first with very little of the monthly payment going towards principle. I immediately saw what a trap this was and transferred the balance of my loan over to a low-rate APR credit card and managed to get my car paid off in a little over a year by continually transferring the balance whenever offered new low teaser rates and 0% (usually for the first 6 months) credit cards. The trick is to keep track of when these rates run out and get those balances transferred to someone else’s teaser rate before that happens. Then, the bulk of your money goes towards principle rather than interest.

I guess to sum it all up - If you need to impress for business purposes and don’t drive over about 15,000 miles per year, you should look at leasing. If you drive a lot and don’t always need the latest and greatest, buying is the answer.

Neil is a contributor to DollarStackin.com. Visit his website at http://www.letsgetahead.com for more great articles.