For new car buyers financing their purchase is a big concern. Thoughts like ‘is leasing a better choice than cash payments’ is a very valid and important consideration. Let’s walk through the top benefits of car leasing and under what considerations it can be the best choice for buyers.
To begin with, leasing is not only a dollars and cent question, it is also a matter of personal taste, lifestyle and priorities. For example, if you want to drive and experience the pleasure of luxury driving but the car you want exceeds your budget, then leasing may be the best way to finance your car.
It is important to understand that leasing is typically a 3 year agreement. At the end of the term the owner must return the vehicle for a trade in or purchase the car outright. Terminating the contract before 36 months will lead to excess charges. Leasing brings with it a mileage limitation between 10,000 and 15,000 miles a year. If the owner surpasses the agreed on mileage, again, penalties will be added on when the lease is over.
Here are the benefits that you can enjoy through this mode of car financing.
Get More Car for Less Money
Unlike car loans that are based on the full price of the car, a lease is based only on he percentage of the car’s price. In other words, when you purchase a $32,500 car with a traditional loan, the full purchase price will be financed. However, through a lease you pay pay the difference between the car’s price and its residual value (the car’s worth at the end of the lease). Let’s assume your car’s residual value is 55% after three years. This means that the $32,500 car would be worth $17,875 at the end of the car lease. So, you have to make lease payments on the remaining amount, or, $14,625.
No Down Payment
Most of the lease agreements feature a no down payment option saving you hundreds of dollars. This makes new car purchase much more affordable and stress-free. What’s required at the time of lease is the registration fee and the first month’s lease payment.
Contrasting from a regular purchase, there is no sales tax* paid on the value of the leased car. However, in most states, do expect to pay both state and local sales tax when leasing.
*In some states including Minnesota, Ohio, Illinois, Texas and New York, individuals who lease are required to pay the entire sale tax up front. This payment is based either on the total sum of all lease payments or it is calculated on the car’s full sales price.
It is important to know that buyers who lease are mandated by law to carry both comprehensive and collision coverage to their car insurance policy.