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In this episode of The Ask Ralph Podcast, host Ralph Estep Jr. delves into the decision of financing versus leasing when purchasing a vehicle. He explores the advantages and considerations of each option, helping listeners make an informed choice that aligns with their personal goals and financial situation.
Title: Financing vs. Leasing a Vehicle: Making the Right Choice for You
Introduction:
When it comes to purchasing a vehicle, one of the common dilemmas people face is choosing between financing and leasing. Each option comes with its own set of advantages and considerations. Let's unravel the pros and cons of financing and leasing to help you make an informed decision.
Financing:
If you prefer ownership and the potential for equity down the road, financing might be the better choice for you. Financing entails taking out a loan to pay for the vehicle, with monthly payments spread over a fixed term. Key advantages of financing include long-term ownership, the potential to build equity, and flexibility in selling or trading the vehicle.
Leasing:
Leasing, on the other hand, provides a different set of advantages. When you lease a vehicle, you essentially rent it for a fixed period, making monthly payments during that time. At the end of the lease term, you return the vehicle to the dealership. Benefits of leasing include lower monthly payments, the opportunity to drive a new vehicle with the latest features every few years, and peace of mind regarding selling or trading in the vehicle.
Costs Associated with Leasing:
When considering leasing, there are a few costs to keep in mind:
1. Monthly Payments: Lease payments are typically lower since you're only paying for the vehicle's depreciation during the lease term.
2. Down Payment: Some leases may require a down payment, but it's typically optional.
3. Security Deposit: Leasing companies might ask for a refundable security deposit to cover potential damage or excessive wear and tear.
4. Taxes and Fees: You'll be responsible for taxes, registration fees, and documentation fees associated with the lease.
5. Excess Mileage Charges: Lease agreements often come with mileage restrictions, and exceeding them may result in additional charges.
6. Wear and Tear Charges: Returning the vehicle in good condition is important to avoid unexpected fees for excessive wear and tear.
Choosing the Right Option:
The decision between financing and leasing depends on your personal circumstances, priorities, and financial goals. If long-term ownership and equity potential resonate with you, financing is worth considering. On the other hand, if lower monthly payments and the excitement of driving a new vehicle frequently appeal to you, leasing might be more suitable.
Don't Forget the Tax Implications:
It's essential to consult with a qualified tax professional regarding the tax implications of financing and leasing. Depending on your business structure, financing may offer tax benefits such as interest deductions and depreciation claims. Leasing payments are usually fully deductible for business purposes.
Conclusion:
While choosing between financing and leasing can seem daunting, understanding the advantages and costs associated with each option will help you make an informed decision. Consider your budget, lifestyle, long-term plans, and potential tax implications. Remember, there is no one-size-fits-all answer, and what matters most is aligning your choice with your personal goals and financial situation.
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EP 26 - Purchasing versus Leasing Your Next Vehicle
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Picture this. You walk into a car dealership, excited to finally get your hands on that dream car. You've been eyeing for months. As you sit down with a salesperson, they give you two options. Financing or leasing. So, what's the difference. And how do you choose the right path?
Welcome back to another episode of the ask Ralph podcast, where we explore how to master your finances. Lower your taxes, grow your business, and find personal success. I'm your host, Ralph Estep, Jr. Today, we're going to tackle a question that many people face when purchasing a vehicle. Should I finance or lease? It's a decision that can have a significant impact on your finances. So let's dive in and unravel the pros and cons of each option.
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Well, my friends, let's start with a fundamental question. Do you prefer to own your vehicle outright or have the option to upgrade to a new one every few years?
If your answer leans towards ownership, then financing may be the best choice for you.
When you finance a vehicle, you're essentially taking out a loan to pay for it. Over a fixed term, typically three to seven years. You make monthly payments until you've paid off the loan amount, and then the vehicle becomes yours.
Now, there are several advantages to financing.
First and foremost, once you've paid off the loan, you're left with a valuable asset.
It's your vehicle? That means you have the option to sell the vehicle. You can trade it in for a new one, or simply continue driving it without any monthly payments. Financing provides you with [00:02:00] longterm ownership and the potential for equity down the road.
On the other hand, leasing offers a different set of advantages. When you lease a vehicle, you're essentially renting it for a set period.
Typically two to four years. During this time, you make monthly lease payments, but the end of the lease term. You return the vehicle to the dealership.
Leasing can be appealing for several reasons.
First, of all lease payments tend to be lower than financing payments. Since you're only paying for the depreciation of the vehicle during the lease term. Basically you're paying the difference of what the vehicle is worth on the day you purchase it.
And when it's going to be worth in the future secondly, you have the opportunity to drive a new vehicle with the latest features and technology every few years,
you know, every time you your lease ends, you're entitled to a new vehicle, or you can decide to get a new vehicle. Finally. leasing and can provide peace of mind since you don't have to worry about selling or trading in the vehicle. at the end of the term.
Now, while there are definitive. Advantages to leasing. It's important to weigh them against the [00:03:00] potential drawbacks.
Let's talk about some of those drawbacks. Unlike financing. Leasing does not build equity. Instead, your monthly payments are essentially paying for the value of the vehicle you use during the lease period.
Additionally, leases often come with mileage restrictions. And exceeding those limits can result in penalties at the end of the lease. I have had clients who have leased a vehicle for business. And they weren't paying attention to their mileage.
They got to the end of the lease and they were 20,000 miles. Over their lease limit. They owed a ton. Finally, if you decide to end the lease early terminate it before the agreed upon term, you may face some steep fees and penalties.
So you might ask yourself, Ralph. What are the costs associated with leasing? A vehicle?
Sounds like such a great deal to me.
Great question. When it comes to leasing a vehicle, there a few costs that you need to consider. Let me break them down for you.
Number one, monthly payments. Similar to financing. When you lease a vehicle, you'll have monthly lease payments. These payments are [00:04:00] typically lower than financing payments since. You're only paying for the depreciation of the vehicle during the lease term. The exact amount of your monthly payment will depend on such factors, such as the vehicles price. The lease term, and the interest rate.
Number two down payment. Some leases require a down payment, also known as capitalized cost reduction. This is an upfront payment that reduces the lease amount and, therefore, lowers your monthly payments. However, not all leases require a down payment, and it's worth noting that it's typically optional.
Number three security deposit. In some cases, leasing companies may require a security deposit. This is very similar to when you rent a house or rent an apartment. This deposit acts as a safeguard for the leasing company in case of any damage to the vehicle or excess wear and tear at the end of the lease term. The security deposit is usually refundable. If you return the vehicle in good condition.
Number four taxes and fees. When leasing a vehicle, you'll also be responsible for any applicable [00:05:00] taxes and fees. These can include sales tax. Registration fees, and documentation fees. These costs vary depending upon your location and the specific terms of your lease. So it's important to check with the dealership or leasing company. For an accurate estimate.
These are going to be very similar to the situation if you finance the vehicle, but sometimes states will charge a special tax for leasing.
Let's move on to number five and that's excess mileage charges. Lease agreements often come with the mileage restrictions.
If you exceed the agreed upon mileage limit during the lease term, you may be subject to excess mileage charges. These charges can vary but are, typically calculate a per mile and can add up quickly. If you go significantly over the allotted miles. It's essential to estimate your annual mileage accurately and consider whether the mileage limit aligns with your driving habits. This is something you want to discuss with the finance manager.
There are options. For example, when I've leased vehicles in the past, you can say to them, well, I generally put [00:06:00] 10,000 miles on a vehicle or 12,000 or 15,000. If you go much higher than that, you may be looking at a financing option as being a better choice.
Let's move on to number six, wear and tear charges. At the end of the lease term, you'll need to return the vehicle in good condition. Excessive wear and tear beyond normal use may result in additional charges. It's important to take care of the leased vehicle and address any damages before returning it. To avoid unexpected fees.
You don't want to take your lease vehicle back, all beat up. They're going to tear you up and charge you all kinds of wear and tear charges. It's worth noting. That's a specific cost associated with leasing can vary depending upon the lease agreement and the leasing company terms. It's also a good idea to carefully review the lease contract and ask any questions you may have before signing. My experience has been many people will go into the finance manager's office and they push a bunch of papers at you.
And you're so eager and excited to get out of the dealership that you don't read. Those things. I really [00:07:00] encourage you to read them. So you know what you're getting into. Remember, leasing can be a great option for those who enjoy driving a new vehicle with lower monthly payments. However, it's essential to consider the cost involved and ensure that they align with your budget and lifestyle.
So, Ralph, you might be asking, how do you decide which option is best for you?
Well, the truth is ultimately depends on your personal circumstances. Priorities, and financial goals.
If you value long-term ownership and the potential for equity. Financing may be the way to go.
If you're one of these people that buys a vehicle and keeps it forever financing is most definitely going to be your best option. On the other hand, if you prefer driving a new vehicle every few years and want lower monthly payments, leasing may be more suitable.
It's crucial to consider factors such as your budget. Lifestyle, and long-term plans before making a decision.
It's also worth mentioning that the choice between financing leasing can have tax implications. Now. These tax implications are if [00:08:00] you're using it for business.
So let's make that a little caveat before we get started on this next discussion. Depending upon your business structure, financing, a vehicle may offer tax benefits. Such as deducting interest expenses or claiming depreciation.
On the other hand, leasing payments are typically fully deductible for business purposes. This is where it becomes essential to consult with a qualified tax professional. Who can guide you through the intricacies and help you make an informed decision? What I'm saying here, folks is that if you purchase a vehicle for your business, You may be entitled to what's called bonus depreciation in the year that you buy it. For the full amount potentially of the purchase vehicle costs. Whereas if you lease it depending upon the type of lease you have, you may be able to only take the monthly payments. As a deduction.
So that may not be the best tax structure. That's why you want to consult. With a qualified tax advisor to make the decision.
All right. My friends, we've covered the basics of financing [00:09:00] versus leasing. When it comes to purchasing a vehicle, remember, there is no one size fits all answer. It ultimately depends on your goals, priorities, and financial situation.
As we wrap up this episode, I want to remind you that the the Ask Ralph podcast is here to empower you with the knowledge and tools to master your finances. If you have any questions or topics you'd like us to cover in future episodes, please don't hesitate to visit our podcastPage@askralphpodcast.com. We'd love to hear from you.
So don't forget to leave a review and send us a message.
Click on the little microphone icon at the bottom. Right. And you can even leave us a cool voicemail message. We'd love to hear from our listeners. Thank you for listening. God bless, you and stay financially savvy.
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