Toyota Lease or Buy?
SHOULD I BUY OR LEASE MY TOYOTA?
More than one third of consumers lease their Toyota’s instead of buying them. One of the greatest benefits of leasing is that you get to drive a newer vehicle more frequently and with most leases running concurrently with the factory warranty on your car, seldom need more than routine maintenance such as oil changes.
The reason so many customers are choosing leasing is that they pay for only the portion of the vehicle they use. They don’t pay for the entire cost of the vehicle. Your monthly payments are based on the difference between the vehicle’s sale price (it’s “capitalized cost”) and what the car or truck is estimated to be worth at the end of the lease term (the “residual value”). Also, typically in a lease you need only your first month’s payment and fees “up front”, instead of a percentage down as is often required in conventional purchase contracts. When the lease term is over, you just return the vehicle. You don’t own it at the end, but you also don’t owe anything on it either.
In short, the “bullet point” advantages are:
- You get more car for the money. Typically your lease payments are less on a lease, so you can choose extra equipment you might not have been able to afford in a purchase.
- You have NO depreciation risk. When you buy a car, you are gambling on used vehicle futures. You enter the world of trade value volatility and negotiation. With leasing you are completely insulated from depreciation because your car’s value is the problem of the leasing company. You get to use the car’s best part when it’s new and then just turn it in when it’s time for car owners to consider tires, tune-ups and timing belts.
- There’s NO haggling over your trade-in’s value when it’s time to move into a new car. You just turn it in and pick out your next car.
- You get to drive a new car more often. Because you choose the term of your contract, you decide when you get a new car. You can choose to match your lease term to the warranty of your vehicle and always be protected by factory warranty. You can enjoy the best part of the car buying experience by always being only a short time away from moving into the latest in technology, safety, style or creature comforts.
- With leasing, you are automatically limiting your liability in the case of a serious accident. When you purchase your car, your insurance will typically only cover you up to a limit of $300,000. In a lease, because you don’t own the car, the leasing company does, the leasing company is then liable for claims in excess of the $300,000.
- Even in a low interest rate environment, make sure you don’t just jump at the low interest rate. It may not be your best move. Compare. We have found lease payments are still less expensive than the low interest rate payments and most importantly, with your low interest rate purchase, you still are making yourself 100% vulnerable to the volatility of your vehicle’s value at the time you want to trade it in.
- GAP insurance is standard on Lynch Toyota leases. GAP stands for: What this means is that if you wreck your car and your insurance company claims it’s worth $10,000, but your bank note payoff is $15,000, YOU are liable for the difference. In Toyota leases, that difference or GAP is covered by the leasing company.
- For businesses leasing there are considerable tax advantages. First, a lease is true off-balance sheet “borrowing”. Since the company doesn’t own the vehicle (the leasing company does) the vehicle(s) do not show as either an asset or a liability and often help in meeting certain total debt covenants in a company’s banking relationship which leaves important availability on working lines of credit. The company can use its lines of credit to help grow the business instead of tying up these funds in depreciation assets. Additionally, the lease payment is written directly as a rental expense which comes directly off the income statement and therefore reduces tax liability. As just one more benefit, leasing allows companies to have a more presentable, newer fleet of vehicles that cost them less in maintenance and up keep while providing the company a better image to its clients.
- A final consideration is that currently Toyota charges only .15 cents per mile for miles driven in EXCESS of the miles you agreed you’d drive each year of your lease. Generally appraisal books on a trade in are now charging .30 to .40 cents per mile for excess miles. For average to high mileage drivers, you can “buy” your miles at half price on a lease versus having a much larger charge against your car had you owned it and were negotiating to trade it in.