What Is Leasing, And What Are Its Benefits?

What Is Leasing, And What Are Its Benefits?

How to Get Started Buying & Selling Cars - traders-insurance.com


The purchase of a car brings with it a considerable expense for your pocket, so you must evaluate which is the adequate financing for your economic possibilities. The first thing to do is to set a budget according to your ability to pay. Don’t forget that you must also consider other expenses such as maintenance costs, gasoline, insurance, license plates, etc.

With these expenses in mind, you may want to consider other acquisition alternatives besides an auto loan. Pure leasing or auto leasing is a financing system in which a person or company uses a vehicle as if it were their own and pays rent for it. After the end of the contract, the customer can exchange it for a new one, buy it or renew it.

Many people opt to get a car through auto leasing because it allows people to get a brand new car without worrying about overspending money or selling it at a devalued price since the payments are lower than those of a loan.

The initial advantage of leasing a car is that the down payments are meager: less than a down payment, and in some cases, even no down payment at all (varies in all brands).

These possibilities will depend on the type of leasing agreed in the contract: closed or open. Closed-end leasing obliges you to return the car when the agreement ends, while open-end leasing commits you to acquire the vehicle for a previously stipulated price. In these scenarios, the best option is to negotiate a purchase option on a closed-end lease.

Auto leasing is also ideal for those who like to continually release new models since the contracts last from two to four years, and you could renew them for a new car.

If a company leases a car, it has the tax benefit that the rentals are one hundred percent tax-deductible; if it is an individual with a business activity, he/she can deduct up to 6 thousand pesos from his/her income.

Customers avoid thinking about the depreciation of the car because if this happens, it does not directly affect the rentals, which are always paid at the same price during the contract.

Another attribute of leasing is that you will be getting a new car every two or three years, depending on the agencies’ plans.

If you wish to buy the car at the end of the contract, you will have to pay the residual value. This concept refers to the value of the vehicle when the financing ends. It is usually agreed at the beginning of the contract and is established by the possible depreciation of the model over the years.

Compare the residual value with the rest of the offers in the market before making a decision. If the residual value is lower, you took good care of the car, and it still has low mileage, it’s a good deal for you.

The main disadvantage of a leased car is that, in literal terms, the vehicle is not yours, so you cannot make physical modifications to the car while the contract is in force. You cannot return the car before the determined time because you will be charged for early cancellation.

That is why you should review your possibilities and needs to choose what suits you best: a car on credit or a car lease.