BUY OR LEASE A CAR
As the price of the average automobile continues to climb, more and more drivers look to leasing as an alternative to buying. Generally, leasing will cost more overall, but it does not entail a large down payment. For the private motorist, the tax differences have been all but eliminated unless, of course, he or she buys a car with the proceeds of a home equity loan.
The best way to choose between the two methods is to shop for the best prices and terms on the car desired and then compare. Frequently, one can obtain information on both from the same dealer.
In weighing all the costs and benefits entailed in leasing, keep in mind the following pros and cons:
REASONS FOR LEASING
 | Lessees no longer lose a tax deduction for interest they would have paid on a car loan, since the deduction for personal interest is being eliminated. |
| Monthly payments are usually lower than those entailed in a car loan. Since the lessor of the car is carrying the acquisition cost, however, the rental rate will include interest expense, omitting possible savings. |
| With a closed end lease, you merely return the car at the expiration of the lease. You need not trade with the same dealer. You are freed from the hassle of trying to sell your used car personally. |
| Some leasing companies provide "loaners" to their customers when the cars are in for service. They may also rent cars to their established customers at a favorable rate. |
| At the end of a lease you may be able to buy the car at a specified price, usually based on "blue book" values. This provision would, of course, be included in the leasing agreement, which also may provide that the lessee must buy the car at the end of the lease. |
REASONS FOR NOT LEASING
| Leases often set mileage allowances, with a charge for distances driven in excess of a specified maximum number of miles. |
| A lease may require a degree of maintenance you would not give to a car you owned outright. |
| The lessor may also be charged for any dents or other minor damages incurred when the car is returned. |
| Usually, there are substantial penalties for premature cancellation of the lease. |
| If you have a serious complaint against the manufacturer you may be in a more difficult position to have corrections made since you are only the user, not the owner. |
| The lessor is just as responsible as an owner for keeping a leased car insured, with comprehensive coverage on your own behalf. |
If the new car is to be used for business driving, a whole new set of considerations takes effect including the deductibility of interest payments along with other costs, the tying up of capital, attribution of taxable income to the user, etc. Additionally, several changes in the tax treatment of leased business cars have taken place, and future changes are inevitable.