Leasing vs. buying a car
There are many factors that can go into the decision of whether to lease or buy a car, truck or SUV. A primary consideration is how you intend to use the new vehicle. Is it an addition to your current fleet? Or is it replacing an older vehicle? Another factor to weigh is whether or not the vehicle will be used as a daily commute driver, or more likely to be what we all know as a “grocery-getter?”
Then there’s the vehicle for a new family teen driver, or one headed off to college. These are often used car purchases and, by default, not necessarily a lease option. All of these questions should be addressed before you begin your search for a new or used car, truck or SUV.
In general, some people prefer the convenience a lease offers in being able to walk away from the vehicle after a certain amount of time. There are restrictions, however, such as annual mileage and wear-and-tear on the leased vehicle.
Others enjoy eventually owning the vehicle outright. There’s something to be said for having the option of one day being able to use the equity in your purchased car, truck or SUV when you go to trade for a new one. Either way, your credit and budget will factor into this decision.
Taxes are another consideration when deciding to buy or lease. In Pennsylvania, you will pay a 6% sales tax, plus any local or city tax on the entire purchase price of the vehicle. Allegheny county currently has a 1% sales tax. In Pennsylvania, if you trade in a vehicle, then you’ll only pay tax on the difference between your trade-in value and the new car. For example, if you trade in a car worth $10,000 and you’re buying a car worth $30,000, then you will only pay taxes on the $20,000 difference, which would be $1,200 in taxes. This tax is due when you purchase the vehicle.
For a leased vehicle in Pennsylvania, you will have to pay the state’s 3% motor vehicle lease tax in addition to the state’s 6% sales tax (plus any local or city tax) on the lease price. So if you lease a car in Washington County, your sales tax is 6% plus the 3% lease tax. This 9% in total taxes would be applied to your monthly payment. For example, say you have a three-year lease on a car with a selling price of $30,000 and a 50% residual. Residual is the amount your leasing contract says your vehicle will be worth at the end of the lease. The lease would be $30,000 minus $15,000, which is $15,000. The lease spans three years or 36 months, so $15,000 divided by 36 gives you your monthly payment of $416.66. That monthly payment would be taxed at 9% ($416.66 x 0.09), or $37.49 per month. So over the course of your lease, you will pay 36 months x $37.49, which is $1,349.64 in taxes.
Insurance costs are another factor to consider when deciding to lease or buy. Your leasing agreement may require you to carry higher liability limits or lower deductibles than you normally would choose. Both higher liability limits and lower deductibles will increase your insurance cost.
To sum up, a few pros and cons of both:
Pros of buying: ability to customize the vehicle; flexibility to sell when you want; eventually becoming payment-free; and possible lower insurance costs.
Cons of buying: Trade-in and selling hassles; higher maintenance costs; rapid depreciation.
Pros of leasing: Lower average monthly payments than an auto loan; lower downpayment; no upfront sales tax payment; ability to own a new car every few years; most repairs are covered by factory warranties.
Cons of leasing: Limited mileage; early termination cost; potential penalties for general wear and tear.
There are several online calculators that can help you decide to lease or buy.