Car Leasing 101 - Auto Leasing vs Buying Chart

Description

Buy

Lease

Initial Cost

May require cash down payment (define: down payment). The amount depends on your credit and any “Special deals” offered by dealers

Although, lease companies claim that little or no cash will be needed, you will need cash for “Initial Lease Costs” that may include:

• Security Deposit
• Lease Payment deposit in advance
• Capitalized Cost reduction (define: adjusted CAP cost)

Operation costs

Excluding payments, are usually lesser than leasing due to the lower insurance requirements and absence of mileage driven restrictions

Excluding payments, are usually higher than buying due to the extra insurance requirements and extra charges for any mileage driven over the limits (usually 1000 mile per month)

Interest / Discount rate

Prevailing market rates. Same as in lease

Prevailing market rates. Same as in Buy

Length of Contract

Average contract is 60 months, can be shorter if higher monthly payments were acceptable

Lease contracts are usually 36 months.

Contract Liability

Term contract binding until fully discharged (completed). Same as Leasing

Term contract binding until fully discharged (completed). Same as buying

Insurance

Lesser requirements than lease. No additional GAP insurance is needed

More expensive due to higher insurance requirements. GAP insurance is likely to be mandatory and adds to your bill.

Monthly payments

Higher than Lease. Why? Because you are building equity and acquiring ownership

Lower than Buy. Why? Because do not own the asset and upon the completion of the lease the vehicle revert-back to the dealer

Restrictions

No restrictions on how many miles you drive and the type of operation. The type, extent, and frequency of maintenance services are entirely up to you. No considerations are given to Miles driven and/or Excessive Wear and Tear.

You are allowed to drive limited mileage only and operate, maintain, and service the vehicle according to pre-defined criteria. You will be charged (up to $0.15) for each extra mile you driven, and will be assessed “Excessive Wear and Tear” at the end of the lease.

Sales tax, title & License fees

Sales tax, license, and title fee are paid when the vehicle is purchased

Sales tax is added to your monthly payments (in most States). License and Title fees are paid at inception

Ownership, Equity, and contribution to networth

You own the vehicle and will build equity and increase your net worth by the net difference between what you owe and the value of the vehicle

You do not own the vehicle and will never build any equity. Your net worth will decrease by the amount of the lease liability

Tax consideration

Individual taxpayers can take the higher of mileage or actual expenses. Usually, mileage provides higher deductions for auto expenses. If actual expenses are taken, deduction will be limited to The depreciation amount of $3,060 per year

The actual lease payment is deductible, unless the lease is a capital lease. For capital leases only depreciation will be deductible.