Is It Ever a Good Idea to Lease a Car?

It may seem blasphemous to suggest this on a personal finance blog, but there are certain instances when leasing a car might make good financial sense. We all know the downsides to leasing — you ultimately pay more for the car than you would if you bought it outright, you are responsible for non-warranty repairs on something you don’t own, and time and distance limits can really take a bite out of your wallet at the end of the lease.

Positives of Leasing a Vehicle

However, there are plenty of upsides to leases, otherwise 20% of new car transactions wouldn’t be leases. Here are some of the reasons why you might consider leasing rather than owning your vehicle:


Photo by Miala via Flickr

1. You always have a new car.

Granted, most of the readers of finance blogs aren’t likely to care about showing off a new car every few years, but it might be worth your while to know you do not have to worry about expensive maintenance and repair issues. If you’re not mechanically inclined and don’t have a quality car mechanic on retainer, dealing with the realities of an aging car can be overwhelming. If you lease your cars and consistently choose reliable brands and models, you generally won’t have to worry about repairs or making the difficult decision of when to give up on an old car.

2. It’s possible to negotiate your lease agreement.

If you’ve never taken a hard look at lease agreements, the commercials may make it seem like you show up, sign some papers, and agree to a single price per month for five years. But for canny negotiators, there is definitely some wiggle room to save money.

There are three aspects to a lease that you will want to familiarize yourself with:

  • Capitalized Cost, which is the purchase price of the vehicle,
  • Money Factor, which is similar to the interest rate, in that it determines the cost-of-money, and
  • Residual Value, which is the value the vehicle will have at the end of the lease.

At the dealership, you will only be able to negotiate the purchase price of the vehicle, as the dealership only has control over that aspect, while the leasing companies control the other two cost factors. However, you can ask the dealer if they work with other leasing companies or banks that might be able to give you a better deal. Leaseguide.com offers a very concise explanation of how to negotiate your lease.

3. Leases can give you a tax break.

If you are self-employed or own your own business, leases could potentially be written off as a business expense. In addition, in most states you will only pay sales tax on the monthly payments, rather than on the entire price of the vehicle, saving you approximately half of the sales tax you would pay if you bought the car.

4. In many cases, there are far fewer upfront costs for leasing.

Though this is not always the case, generally you can expect no down payment or a very low one, plus lower monthly payments than you would have if you bought the car. Even if you have to put money down on the lease, it will be substantially lower than what you would pay to buy the car outright. The quality of the vehicle you receive access to with your funds is much higher with a lease — you would only be able to buy a beaten up used car with those funds otherwise.

As a generally frugal individual, I will probably never specifically recommend that someone get a lease rather than buy a car (with cash!). However, for individuals who aren’t mechanically inclined, who don’t drive a great deal, who are willing to negotiate, and who could benefit from tax breaks, a lease could be a good solution to your car needs.

About the Author

By , on Jul 6, 2011
Emily Guy Birken
Emily Guy Birken is a freelance writer, recovering English teacher, and stay-at-home-mom. She lives in Lafayette, Indiana, with her mechanical engineer husband and infant son. Her musings on life and parenting can be found at The SAHMnambulist.

Leave Your Comment (6 Comments)

  1. Pinyo says:

    @Emily – another reason to lease is if you’re not planning to keep the car for that long. About 18 months ago, we bought a used car with the intention to later upgrade it — which we did by buying a new car with 0% APR finance. In retrospect, we could have enjoyed a better car for less money if we had leased a car during that time.

  2. Natalie says:

    Ah, the age old, to lease or to buy? Question. I’ve never leased a car myself, but I do see where it would make sense. I’m kind of comparing it to leasing a home versus owning one. I rent a house right now, because it just doesn’t make financial sense for me to buy one, and commit to something for that long. I think it is the same with a car: leasing a car is like having an apartment; owning one, is like owning a home. (Sort of!) I work for MangoMoney’s blog and we have a post about just that. Check it out! http://www.mangomoney.com/blog.....k-yourself

  3. Simon M says:

    I think on balance it’s usually better to buy the car outright than lease it. If you can’t afford to buy one outright, getting a 0% interest credit card might be an option, giving the opportunity to get a new car, without having to pay for it right away, and better yet, interest free. This of course would depend on your credit rating though.

  4. Krantcents says:

    leasing is always an expensive way to have a car, but can be justified as a business expense. Your lease includes the depreciation of a new car which is losing value very quickly.

  5. Mark says:

    Why buy a car with cash? I mean, on the surface, yes. But with auto loans as low as 2.49% – why not get a loan and invest the cash? Even in these “tough economic times”, I don’t expect an annualized return of less than 2.5% in an index fund.

  6. I’m not afraid to admit that I’ve leased cars for the past 13 years or so, and I’ve never apologetic about it. I like the fact that I get my regular maintenance included, knowing that I don’t have to worry about costly repairs that will come out of my pocket (plus any rental costs), and not having to deal with the hassle of selling a car later on. I also like taking advantage of the fact that my credit is good enough to qualify for no money down programs and generally walk out of the dealership with the car I want on my terms, not theirs.

    Sure, people will disagree with me, but that’s their opinion and I respect them for it.

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