Should you buy or lease your car?

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Crunching the numbers

One of the reasons leasing a car is appealing to some is the fact that they don’t have to pay for or finance the entire cost of a vehicle. You’re simply paying for the use of that vehicle over the length of the lease. To help put a dollar figure on the comparison, consider the following:

•Total initial payment, which includes the down payment and any extra fees.

•Amount of each monthly payment.

•Number of months in the lease term.

•Possible additional charges at the end of the lease (mileage, damages).

With a lease, the monthly payment is based on the difference between the vehicle’s transaction price and its estimated worth at the end of the lease term. This difference is financed at a particular rate of interest.

Typically, the down payment and monthly charges will be lower with a leased vehicle than a purchased vehicle, which is why you can usually obtain a better vehicle for the same cash you put down. Most leases will also have the option of purchasing the vehicle at the end of the contract. This, however, is often more expensive over time than buying it outright.

Evaluating your situation

1. How is your cash flow? If you’re short on cash, leasing may make more sense because you’ll typically be required to put less money down.

2. Are you a new car junkie? Leasing can provide you with a new car every few years.

3. How many miles do you drive each year? A typical lease customer drives 15,000 miles each year. If you drive substantially over or under this average, leasing may not be for you.

4. Do you use your car for business purposes? If you are deducting a portion of your car’s depreciation from your taxes, you will be able to deduct substantially more if you lease. Interest paid on loans to purchase a car is not deductible. When you lease, you can deduct depreciation as well as the financing costs. The IRS limits depreciation deductions for certain luxury cars.

5. Are you hard on your car? If so, leasing may not be right for you. The wear and tear may trigger damage fees at the end of the lease.

A CPA can help

Whether you lease or buy, a car is a big investment. A CPA can help you analyze your current situation and determine the best course of action with regard to your personal financial plan. To find a CPA in Pennsylvania by location or area of expertise, visit www.ineedapca.org

 

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