The Principles Of Leasing
When you purchase a vehicle you pay the total sale price. Lease payments on the other hand, reflect only the value of the car to be used over the term of your lease. For that reason, leasing may often allow you to enjoy (at a lower monthly cost) more vehicle than you might otherwise have purchased.
As an example, let’s suggest you’re interested in a $55,000 vehicle that will have an estimated value of $22,000 at the conclusion of your lease. If you choose to finance the vehicle purchase in the traditional way, your monthly payments will be based on the total value of the vehicle plus applicable taxes. If you choose to lease, your monthly payments will be lower, as they will not include the $22,000 end value or the applicable taxes on that amount.
The benefits of leasing include:
1. Nominal outlay of Personal Capital
Leasing uses the capital of the leasing company. All that is normally required of the guest is a security deposit and the first month’s payment in advance. There is generally no need to lay out your own money, make a large down payment, or tie up your lines of credit for a depreciating asset. (As usual, the lessee is responsible for insurance and all applicable taxes.)
2. Lower Monthly Payments
A lease payment is calculated on the difference between the vehicle’s original value and its anticipated value at the end of the lease term. The term selected, cost of borrowing, service/administrative fees, expected resale value and original value all affect the monthly payment.
3. Tailored Monthly Payments
You can adjust your monthly payment to meet your driving requirements. Additional kilometres can be purchased at reduced rates at the beginning of the lease. Down payments can also be added to reduce your monthly lease payments or you can simply provide additional security deposits to lower the interest rate used to calculate the lease.
4. Efficient Vehicle Cycling
Leasing enables you to replace your vehicle every two to five years, allowing you to drive a new vehicle more often.
5. Tax Considerations
If your vehicle is used for business, a portion of your monthly payment may be eligible as a deduction against qualifying income. Expert tax advice should be obtained.