When we want to buy a new vehicle, there are several options. We can finance our purchase, pay cash, or lease our new vehicle. As with many choices in life, there are advantages and disadvantages with each alternative. We have already covered the benefits of financing in a previous text, now we will turn to the benefits of leasing.
A lower monthly payment
With a lease, we pay only a portion of the total value of a given vehicle. The remaining value is called the residual value, and we will have the option to pay it at the end of our lease if we want to buy our vehicle, or to hand over the vehicle to the manufacturer and buy another new vehicle.
Since we have an obligation to pay only a certain percentage of the total value of a vehicle, our monthly payment will be lower with a lease. For example, imagine you want to buy a new vehicle that costs $ 30,000, and that is also offered for lease with a 50 percent residual. You can pay the $ 30,000 over five years, or pay $ 15,000 over four years (the majority of leases do not exceed four years). Even if interest rates are different, you can quickly see that the lease will be more affordable monthly.
There are several factors that come into play with this calculation that we do not discuss here. What is important to know is that if we strictly look at the monthly payment, the latter will be more affordable with a lease.
We avoid depreciation
A new vehicle loses a percentage of its value as soon as it leaves the dealer. In addition, we all know that a vehicle is not an investment unless we keep it for a very, very long. So, many buyers prefer to pay a portion of the vehicle and then replace it, than to pay more to own but risk never recovering any significant portion of their investment. The end result will depend on several factors, but in general, if we are the type that changes vehicle every two or three years, and even after four years, it is better to lease.
If you use your vehicle for work, or you are an entrepreneur and want the vehicle registered in your company’s name, there are significant advantages associated with leasing. A tax advisor or even your financial planner will be able to help you better understand these benefits and guide you in your decision.
Thanks to Truro Mazda for their help with this article