Benefits of Leasing
When you purchase a vehicle outright, you pay for the entire vehicle up front. Leasing means you pay only for what you use over time with the option to buy at the end. Because lease payments are typically lower than loan payments, you typically can expect to get more car for less money by leasing.
For example, on a $25,000 vehicle, you’d finance the entire $25,000 purchase price. When you lease, you only pay the difference between the car’s price and what it’s expected to be worth at the end of the lease, which is called the residual value. So, if the car’s residual value is 55 percent after three years that means the $30,000 car would be worth $13,750 at the end of the lease. You’d make lease payments on the remaining $11,250 and not the full $25,000.
If you don’t have a large down payment, leasing makes more sense. Vehicle leases usually do require some money up front, but that amount is negotiable. Many advertised lease offers will promote low payments, but require a sizeable down payment. If you want to put as little down as possible, remember that your monthly lease payments will be higher.
Most leases last 36 months or three years, which is typically the length of many new-car bumper-to-bumper warranties. Because of this, the vehicle you are leasing is usually covered under warranty for repairs for the duration of the lease. Though you still need to maintain the car, leasing can help eliminate big-ticket repair costs.
At the same time, leasing allows you to have the newest technology, convenience and safety features. Just like getting a new cell phone every two years, leasing allows you to get a new vehicle every three years – or less.
Finally, with a leased vehicle you don’t have to worry about selling or negotiating for a fair trade-in price. When your lease is up, you simply turn the vehicle in or purchase the vehicle for the residual value.
Thanks to a new Illinois law that took effect Jan. 1, 2015, state taxes on vehicle leases were reduced by as much as 50 percent, allowing consumers to get more car for less money. House Bill 2317, signed in May 2014, alters the way taxes are collected on light-vehicle leases. Prior to Jan. 1, 2015, a leasing customer paid tax on the entire purchase price of the vehicle. After Jan. 1, 2015 customers intending to lease a new vehicle pay taxes only on money due at lease inception and monthly lease payments. Because most vehicles have a residual value of 50 percent or more, this change reduces the taxes owed by new lessees by 50 percent or more.
Leasing Can Save You Money
Prior to Jan. 1, 2015, a DuPage County resident leasing a $27,000 vehicle for 36 months with no money down would expect to pay about $1,890 in state taxes. After Jan.1, 2015, that same customer would pay just $945 in taxes - assuming the vehicle had a residual value of 50 percent. That's a savings of $945, amounting to more than $25 per month. The savings get even greater on 24-month leases or more expensive vehicles. For example, a DuPage County resident leasing a $60,000 vehicle for 24 months with a 65-percent residual prior to Jan. 1, 2015, would pay $4,200. After Jan.1, 2015, that same customer would pay $1,470 in taxes, saving $2,730 in taxes over two years.