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Leasing an automobile : Some items to consider before you make the decision.
Advantages to leasing: you can often get into a lease with a low down payment. And, since you're only paying off the depreciation on the car's value, your monthly payments may also be less than buying the car. Usually, the end of the deal is generally easy - rather than having to hassle to sell a car or trade it in on a new one, you simply take it back to the dealership.
Leasing also has drawbacks. Since you're really renting a car with a lease, you're merely laying down cash to keep you behind the wheel for another 30 days. In other words, you're building no equity. You'll never be without a car payment, while someone who buys a car and takes care of it can enjoy many years of driving without having to lay out more cash. Getting out of a lease prior to its designated termination date can also be extremely expensive, as many lease contracts have steep penalties for early returns. Leases also charge you extra if you drive more than the number of miles specified in the lease.
Here's a checklist of additional elements to consider when choosing whether to lease or buy:
1. If you tend to be rough on cars, you may do well with buying. Dealers expect their cars to be returned to them in excellent shape -- anything beyond an expected amount of wear may mean additional fees for you.
2. Insurance can be a bit trickier with a leased vehicle. If you destroy the car or it's stolen, there's always the chance that your insurance coverage may not cover all that you still owe to the dealer. Be sure to obtain coverage to address any potential shortfalls in your coverage.
3. Bad credit may also make it harder to get a lease with reasonable terms. Of course, bad credit affects you no matter if you're buying or leasing, but it's particularly problematic when you're shopping for and attempting to negotiate a good lease plan.
4. At first glance, leasing may appear to be a rather simple proposition: Just set up the terms of the lease, length and a schedule of payments and that's it. In many ways it can be as confusing as the most complex purchase arrangement.
We recommend speaking with your tax advisor on tax benefits / drawbacks to leasing.
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