Deciding Between New Versus Used Vehicle and Whether to Lease or Purchase a Vehicle
Of course, there are a few more enjoyable buying experiences in life than getting a new car. Even the smell of a new car is so favored that clever companies sell aerosol sprays of the new car aroma. Many people, however, feel that they cannot afford a new car or do not want to suffer the costly depreciation of a new car, and therefore, the pros and cons, as well as, true cost of car ownership need to be considered. Let me start with saying that it is a falsehood or common misnomer that used vehicles are less expensive to own than new vehicles for a variety of reasons.
First, many manufacturers offer substantial discounts in interest of even zero (0%) percent interest for up to five (5) years as compared with substantial used car interest rates ranging from perhaps seven (7%) to twenty-five (25%) percent. In addition, the cost of maintenance and repairs for a used car could quickly amount to thousands of dollars as compared to no cost for repairs under a new car warranty. Both new and used vehicles, of course, require routine maintenance (oil changes, replacement of tires, batteries, wipers, hoses, etc.). Even some brands, such as Toyota and BMW, include free maintenance for the first few years. What the consumer must try to ascertain, is the true cost of vehicle ownership during the period of years that it is anticipated that the car will be used by the consumer. Often times, it is the new car that costs less in the end. Although in the last few years, leasing companies have lowered the residual values of the vehicles, thus raising the monthly payments to recover the greater depreciation and making leases less attractive than other financing under a purchase.
The next factor to consider is whether to purchase or lease the vehicle (car, truck, SUV, hybrid, motorcycle, boat, etc.). This often depends upon the monthly cost of financing versus leasing, as well as, the rates of interest available for each type of financing. It is easy to determine the costs of car ownership and the rates of interest being charged, however, truly understanding the cost of a lease with its numerous and complex terms and factors is difficult.
I well recall my Economics professor from college who held a Doctorate’s degree admitting that even she could not understand the true cost of most leases, and therefore, the rest of us should not be ashamed to admit the same confusion. Things are made worst by either unscrupulous dealers or uneducated salespersons who do not readily explain or disclose the true cost and rate of interest of leasing a vehicle. Therefore, the consumer must look very carefully at all stated terms in the proposed lease, including, but not limited to, the price of the vehicle, monthly payments, the residual purchase option price, up front bank fees, end of lease surrender fees, mileage limitations, etc., and add up all of those figures to determine the total cost of the vehicle during the lease term (typically 18-36 months).
The manufacturers make it even more difficult in trying to make comparison shopping by offering different lease terms. For example, if you are considering leasing a new Mercedes Benz or Land Rover for their twenty-seven (27) or thirty-nine (39) month lease, it is difficult to compare to the twenty-four (24) or thirty-six (36) month lease offered by Audi, BMW, etc.
There are additional pros and cons of ownership versus leasing such as the ease of returning a car at the end of the lease as compared to the uncertainties of trading in the vehicle for another car in the future. However, the lease will lock you into a certain time of use and when the vehicle must be returned as compared to owning a car, you are free to continue use or trade it in at anytime.
There are additional tax advantages and limited deductions for each type of financing, which is beyond the scope of this Blog and should be discussed with your accountant if using the vehicle for business purposes. However, keep in mind that in certain jurisdictions, such as New York, that using an automobile for business purposes for over fifty (50%) percent of the time as compared to personal use will prevent use of the Lemon Law statute which is a very favorable consumer law in the event of repeated repairs or the vehicle being out of service for extended periods of time. Therefore, in such jurisdictions, it is wise not to declare business use of the vehicle for a majority of the use on income tax returns of your business or Schedule C.
Please refer to my other Blogs for more information regarding the Lemon Law or feel free to call my office with any specific concerns or questions.
Anthony T. Ballato, Esq. on Auto Fraud and NY Lemon Law Part 1 and 2
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- New York Statutes Applicable to Common Topics Concerning Motor Vehicles (Other Then the Lemon Laws Discussed Elsewhere)
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