If you’ve ever seen commercials from car dealerships that advertise “no-money down” or “no credit needed” lease agreements, you may be wondering what a lease agreement is and why anyone would rather lease a car instead of buying one. A lease is essentially long-term renting, and there are many benefits that come with this type of agreement.
One of the most common reasons people choose to lease a vehicle instead of buying one is the short-term affordability that they offer. When someone purchases a vehicle, they either have to cover the entire cost of the vehicle out of pocket up-front or secure a loan. When someone leases a vehicle, though, he enters into a long-term agreement to pay a monthly amount over a specified period of time. When that period of time ends, the vehicle is returned to the dealership. Because the nature of a lease involves long-term payments and the intent of the dealership to recoup the value of the vehicle at the end of the lease agreement, lessors usually don’t require the lessee to pay any significant down payment, if any at all.
If you use your leased car for mostly business purposes, you can file the cost of the percentage of time that you use your car as a business expense on your annual tax return. For example, if you pay $5,000 a year -- $416 per month -- in lease payments, but you use your vehicle for business purposes 80 percent of the time, you can write off $4,000 off on your taxes as a business expense.
If you are nearing the end of your lease agreement or have built up any owner equity by paying a large down payment or trading in a car to begin with, you may be able to trade your vehicle in as a down-payment toward a new lease on a different vehicle. If you do it correctly, you may be able to keep trading in your used vehicle for a new one every few years, which would allow you to forgo the maintenance costs of an ever-depreciating car while also never being stuck with the same old vehicle for more than a few years.
Trade in your vehicle before your lease agreement expires or you won't have any equity left to put down on a new lease.
In addition to not having to pay for major issues that an older vehicle would incur, most lease agreements include a bumper-to-bumper warranty for the first year that will cover any damages or problems with the vehicle. Most leases also include a manufacturer’s warranty than can last for a decade or more, which will cover most major damages.
Another benefit of leasing a vehicle is that most lease agreements offer GAP insurance coverage, which is essentially an insurance plan that covers the difference between the cost of repairs and the amount that your car is worth. Most lease agreements require you to have both collision and comprehensive insurance, but GAP coverage is an optional policy that could protect you from thousands of dollars in liability.
