Benefits of leasing: Three simple reasons leasing may be right for you.
What’s the worst part of owning a car? Depreciation! The more you drive it, the less it’s worth. Actually, even if you drive very little, your car is still worth less and less each and every month; cars are rarely good investments (from a financial perspective). Enter the idea of leasing. Most people think leasing is bad because someone, somewhere, sometime long ago told them so.
Here’s why leasing could be a perfect fit for you.
- The first benefit of leasing involves depreciation. If depreciation is a car’s worst enemy, why not let someone else shoulder the risk of the vehicle’s value? When you lease a car, the bank (who technically “owns” the car) assumes the risk from day one all the way until the lease is over (assuming you keep the car for the full term). A residual value is set by the bank; it is a guess at what the car will be worth at the end of the term. If you buy a $50k car, and the car has a 50% residual value, the bank then stakes their claim to the idea that the car will be worth $25k when the lease is over. If it’s worth more, then under certain circumstances you, as the lessee, can capitalize on the positive equity. If it’s worth less, you simply turn in the car and let the bank deal with the negative equity.
- The second benefit of leasing is interest savings. The bank sets an interest rate that you pay, but only on the amount of depreciation ($25k, as per the example above). Therefore, you don’t pay interest on the full value of the car. You only pay interest on what you actually use.
- The third benefit of leasing is tax savings. You only pay taxes on the base payment each month, not the full value of the car.
Combined, these three benefits of leasing could mean that you keep a larger chunk of your hard earned money tucked safely away in your own pocket.
The most common scenario: You finance a vehicle for 60 months and end up trading it in 36 months later. At that point, you more than likely owe more than the vehicle is worth, giving you negative equity to roll into the new loan for your new car. Essentially, you are still making payments on a car you don’t even own any longer. If you leased the same car for 36 months, you’d be in a position to step away from the vehicle without the baggage of negative equity.
Now, there are lots of details to become familiar with when you explore your lease options, and leasing is not for everyone. So, let our experts answer your questions and guide you through the benefits of leasing, as well as the drawbacks, in a friendly and no pressure way.
Did you find this article helpful? Did we miss anything? If you have questions, or ideas for future articles, hit us up in the comments. We are here to help!
This article was written by Justin Adis, General Manager at Prestige Imports.
The post image is a photo composite, the foreground image (hand, money and jeans) was photographed by Mike Schmid and the background image is from our archive.