When Does It Make Sense to Lease?

Regardless of your financial situation, there are times that it makes more sense to lease a vehicle than it does to purchase one new. The following situations lend themselves to opting for a leased vehicle over a purchased vehicle.

  • You live close to your job and only use the vehicle for travel to and from work keeping the mileage low
  • Your job position demands a certain amount of status.
  • You have limited cash for a down payment immediately.
  • You are over 50 and don’t want to commit to a 5-year loan payment.
  • You want to keep payments low to save money to purchase a vehicle.
  • You intend to trade any vehicle you choose within 2–3 years.
  • You prefer a new car over a pre-owned vehicle that has potentially high repair bills.

You are self-employed and can deduct the lease from your taxes (ask your accountant first!) People who live in the suburbs or travel more than 50-miles a day to and from work may not find leasing as beneficial as purchasing a pre-owned vehicle in order to save enough to either pay cash for a new car or have a large down payment.

Other deterrents to leasing include: You are solely responsible for total price of the vehicle while it is in your possession not just for the cost of the entire lease. If you are in an accident and the car is totaled, you must pay the entire balance of the loan just as if you purchased it new.

  • Insurance on leased vehicles cost more than on purchased ones.
  • You will need additional liability, non-insured driver and collision plus other required coverage.
  • You will need Gap insurance for the term of your lease to cover the cost of the vehicle repairs or replacement during the term of the lease. If your situation or life circumstances change radically during the term of the lease, you may find that you need to terminate the agreement
  • Early termination at the dealership will come with high penalties and extra fees.
  • You are still responsible for paying off the balance of the lease Comparing base prices5 not including insurance, registration and other fees tells you whether you want to start with a pre-owned vehicle, a leased vehicle or if you want to get a new car within the same monthly payment range.

In purchasing new cars, you can extend the payments for 5-years and with a down payment of $5,000 to $8,000 the payments may be less than a lease vehicle. However most automobiles are designed to be replaced in 4.5 years before major mechanical repairs start needing to be done.

  • A transmission replacement averages between $3,500 and 5,500 depending on the make and model and this could have a major impact on other things you choose to do. Buying a pre-owned vehicle that is still fairly new will give you many of the same modern features that new cars offer and most of the depreciation has already happened.
  • 2-year old pre-owned vehicles can have their payments stretched out to 4 years but that’s 1.5 years after the typical “replace major parts” date. Comparing purchasing a 2-year old vehicle with the same make and model as a new car lease shows that the cost difference in monthly payments is only slightly different.
  • Purchasing a pre-owned 2013 Lexus GS350 at $38,895 with $5,000 down and a 48-month loan results in monthly payments of $816.61.
  • Leasing a new 2015 Lexus GS350 with a price tag of $54,003 with $5,000 down to drive off the lot and 24 month lease results in payments of $919.44. Ride share peer-to-peer rental is something new to Americans but has been a method of using a vehicle in Europe since the recession began.
  • Ride sharing is not something that is really equitable in areas of the U.S. or Canada where you have to travel more than 2-miles to the grocery store and where public transportation is limited. People that live in major cities with good transportation, such as New York, Boston, Philadelphia or Chicago, can utilize ride share peer-to-peer rental as a monthly expense or for times when they need to get to the doctor’s office, see a family member who lives in another town or other situations that are infrequent. There is a second type of ride sharing that is known in the U.S. as “Uber”.

Uber is a company that started in San Francisco and you call for the car when you need it. The same car may be passed around to several people in one morning. In New York City, the taxi cab companies are claiming that it is operating as a cab and eating into their income. But, in Paris and London, Uber is a huge hit.