When Leasing is Better Than Buying a Car | Tax Tip of the Week | No. 108

Leasing vs. Buying a Car.....Leasing can make sense for certain people in certain situations.  Leasing, however, isn’t for everyone. Here are some of the factors we consider when clients ask us whether they should lease or buy:1. If you drive less than 15,000 miles per year, and if you buy a car every few years.2. If you have a steady income stream, and/or3. If you are self-employed and use the car for business.When negotiating the price of the vehicle, make sure you don’t let the sales person talk you into making these mistakes:Mistake #1: Not haggling over the cost of the carThe capitalized cost of the car is one of the critical starting points; negotiate the cost of the car before saying whether you want to buy or lease.Mistake #2: Not paying attention to the residual value used in the lease calculationsThe residual value (or buyout value) is the estimated fair market value at which the lessee may buy the vehicle at the end of the lease.  It pays to choose a car that retains its value since depreciation is the largest component of the cost of owning a vehicle.  So watch that residual value when negotiating car leases.Mistake #3: Just give me the lowest monthly payment for a leaseFrequently, car dealerships get lessees to think only about the monthly payment, resulting in bad terms in other parts of the lease, like overage charges for driving over the contracted number of miles per year.Mistake #4: Not noticing the interest rate used in the lease calculationsThis interest rate is called the implicit interest rate of the lease, and it is important to get the best rate, just as if you were going to buy the car.Mistake #5: Not negotiating the lease acquisition feeThe lease acquisition fee for a lease can run from several hundred to more than a $1,000, depending upon the automaker. Frequently, a lessee is told that there is no way to avoid this fee. This is sometimes true, but the dealer may say it could be reduced.In these times of low interest rate financing, it pays to see if a properly structured lease, with a low implicit interest rate, is the best way to go.Let us know if we can help.You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.Rick Prewitt - the guy behind TTW...until next week.