Planning For Retirement........

Certified Public Accountant
50 School Street Glen Cove NY 11542
516.671.0427

Buy vs. Lease
For a Vehicle

The list below provides advantages and disadvantages of owning a vehicle and leasing a vehicle.

Leasing a Vehicle

Advantages

1) You are able to put down a small down payment ($750-2500). If your credit is excellent, many times you will have the option to put zero or a nominal amount as a down payment.

2) You may return the car to the dealer after a specified period (Possibly 24, 30, or 36 months).

3) It is the dealer's responsibility to dispose of the used vehicle when you return it.

4) Many times the extended warranty covers the major components of the vehicle to the end of the lease. This limits your potential auto repair expense for the vehicle.

5) When you lease, you are financing only the spread. The spread is the cost of the new vehicle less the residual at the end of the lease. For example, if a new vehicle priced at $30,000 is leased for 3 years (36 months) and the residual value is $18,000, you are only borrowing $12,000 ($30,000-$18,000). Therefore, if $12,000 were divided into 36 equal payments, the monthly payments would be $333.33/month. You must add interest, which is generally at a very competitive rate (Possibly 5% - 10% per annum). If the interest rate was 7.5%, the approximate interest would only be an additional $38 per month. Therefore your payment would be $371 per month for the new vehicle. You would still be responsible for the sales tax $1135.26. (133.56(371*36)*8.5%). Your down payment would be $1135.26 in sales tax plus possibly $200 to $300 in registration and miscellaneous fees. Also you would probably be responsible for your 1st monthly payment of $371 up front. Therefore, for approximately $1775 down and a 35 month additional commitment at $371 per month you would be able to drive a new vehicle. It may also be possible to finance the sales tax and other fees for as little as an additional $40 per month. Therefore, your down payment could be as little as $500 with a $411 ($371+$40) monthly payment.

6) You have the option to purchase the vehicle at the end of the lease. The purchase price is determined at the lease signing. Many times the dealer will finance the purchase of the vehicle.

Disadvantages

1) You are only allotted certain number of miles annually for the vehicle such as 12,000 to 15,000 miles per year. For example, if you were to have a 15,000-mile annual allowance and you were to lease for a 3-year period you would be allotted 45,000 miles. If you were to use the vehicle for 55,000 miles, you would have exceeded the 45,000 (15,000*3) mileage allowance and would pay a fee on the 10,000 miles over your allowance miles (Possibly 15 cents per mile). Therefore, in this example you would owe the dealer $1500 (10,000 miles*15 cents).

Owning a vehicle
Advantages

1) The personal satisfaction of owning an asset.

2) If you put low mileage on the vehicle, perhaps 6,000-10,000 miles per year, it probably makes sense to own.

3) The ability to own a Classic Car, (for example a Model T Ford).

Disadvantages

1) You probably will be required to come up with a sizable down payment, (possibly $5,000 to $20,000) to purchase a new vehicle.

2) Your monthly payment (if applicable) will be based on the entire cost of the vehicle, not just the difference between the cost of the new vehicle and a residual value.

3) You are responsible for selling the vehicle once you have decided it no longer meets your needs.

4) You are responsible for the maintenance of the vehicle, as long as you own the vehicle.

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