Lease Verus Buy

We are often asked is it better to buy or lease a vehicle (or for that matter a piece of equipment)? Our first answer is always “it depends”. As with many business financial and tax issues it is not possible to say one way is always better than the other because each person and situation is different.

A purchase or lease is simply two different methods of financing a vehicle or piece of equipment. When purchasing a vehicle you are paying for the entire cost of the vehicle upfront with no limitations on how much you can use the vehicle. In a lease arrangement you only pay for a portion of the cost of the vehicle for the period of time you are using it. At the end of the lease term you can turn it in or buy it for its depreciated value. So when making a decision on whether to buy or lease you need to look at the economics of the financing, the limitations of the two options and your own personal preferences.

A leasing transaction is usually more complicated than a purchase. A lease will usually have a limit on the number of miles that can be driven over the lease term, and if exceeded have a financial penalty associated. The lease may also have residual values required as well as other financial factors that need to be understood and reviewed carefully.

From a financial standpoint a lease will cost less in the short term, 3 years or less, around the same in the intermediate term, 3-5 years, and more in the long-term. If your intention is to hold on to a car for a longer term buying will usually be the better way to go.

It is important to consider the personal preferences while also evaluating the financial considerations. Some important factors to consider in leasing versus buying are as follows:

Leasing
• Like a new car every few years and the new features
• Like lower monthly payments in the short-term
• Don’t mind paying more over the long-term
• Don’t drive a lot of miles in a year (usually no more than 12,000 – 15,000 miles)
• Maintain your vehicles in good condition
• Don’t like to deal with trading in or selling a used vehicle

If these apply and you understand the conditions and terms of the leasing agreement, then it is likely that leasing is the way for you to go.

Buying
• Usually hold on to a vehicle for longer periods of time
• Can afford higher monthly payments
• Like to ultimately not have a car payment for a period of time
• Typically drive a lot of miles or put heavy wear on a vehicle
• Can deal with the uncertainty of maintenance costs

If these factors are significant to you then it is likely that buying the vehicle is the way for you to go.

This is a brief summary of the issues around leasing and buying but gives a good idea of the things to consider. Feel free to call us if you would like to discuss further.