I hear a lot that businessowners should lease cars for tax purposes. The tax treatments of leased versus owned cars for businesses and entrepreneurs is, unsurprisingly, confusing. I’m not a tax expert, even though taxes touch everything I do as an entreprenuer. But here’s a link to the best explanation I could find on how the deductions work, by an actual tax expert (or so she says… I don’t personally know her). She basically recommends buying over leasing.
The other day, I counted and learned that I have owned 10 cars and leased 1. I far prefer to buy (even though my lease was my best car ever). Like most Libertarians, I like tangible assets and don’t trust banks. But there are some definite perks to leasing.
The conclusion I made after going through more than a dozen car transactions in my life (I also help family members buy cars) is that buying is more financially sound but also more austere. A friend of mine recently said that he wanted a Tesla (and test drove one) but paid down his mortgage instead. He said “future me will appreciate that decision more than current me.” That’s what the buy vs. lease decision boils down to: you have to balance future and current happiness factors.
Advantages to Leasing
- No depreciation
For most people, buying a new car stands as the second largest financial decision they make. Only the purchase of a home tends to rank higher than buying a car. The bottom line is that new cars do depreciate instantly once they are driven off the lot; this fact is not a myth. Opting to buy a used car to avoid depreciation may be a savvy financial decision, but is not nearly as much fun. Leasing negates this issue.
- No worries about maintenance
You don’t have to worry about maintenance when you lease a car (well, some contracts have you pay for oil changes and tires). There’s definitely a pampered feeling when you go to the dealer and drop the car off and they give you a loaner of some really high-end car — it’s a different experience than my normal Jiffy Lube run. And the car is under warranty the whole time. When the warranty runs out, poof, new car time.
- Always have a new car
Do you love the look, smell and feel of a brand new car? With leasing, you’ll never have to worry about driving a car that feels outdated. This also means you’ll always be able to benefit from the newest safety features and technological innovations.
- Change cars as your needs in life change
The one time I leased, I did so because I wanted a big firm lawyer car without the long term commitment. I planned someday to have a family, and so my sporty little Mercedes wasn’t going to cut it. Three years was the perfect amount of time to enjoy it. By then, I got a sporty husband and a sporty dog, and a truck became necessary.
With leasing, you don’t have to worry about making a huge mistake by picking the wrong make or model. If you end up selecting a car that you don’t like for one reason or another, your lease will simply run out and you will not be stuck with the car.
Advantages to Buying
- No mileage restrictions
Regardless of whether you opt for a new car or used car, the bottom line is that mileage matters. If you know that you will be driving your car many miles on an annual basis, then buying is likely to be the superior option.
Leases have mile restrictions, which tend to be 9000, 12,000 or 15,000 miles a year. They charge overage if you go over these amounts. This factor can quickly turn leasing into a losing proposition.
2. Free yourself from car payments
If you are hoping to some day be without a car payment, then buying is the way to go. I haven’t had a car payment (or a mortgage payment) for years and that gives me a lot of happiness. I highly recommend it.
- No wear and tear fees
Leasing can be stressful if you are prone to accidents or you want to put a spoiler or racing stripes on your car. If you spill your coffee or degrade the inside of the car, you’ll be charged fees to clean it up. That’s why people with small children or pets should probably buy. You can also be charged high fees for small dings and dents in your vehicle.
In the end, both options have their advantages, and the right pick depends on your needs, lifestyle and financial goals. If you do decide to lease, be sure to read the fine print in your contract to make sure you thoroughly understand the terms.