In my 19 years in the automotive business I have worked with many different clients with a variety of needs. However, most consumers still seem mystified about whether they should lease or purchase. First, I do not profess to be an accountant but only can advise based on my experience. Second: There is no wrong answer! Here is my basic philosophy regarding when to purchase and when to lease.
Self-Employed or Company Use of Vehicle.
Most accountants will agree that is easier to calculate your percentage of business use for tax purposes when leasing. The federal government will set a maximum monthly payment allowable (in 2005 it was $800 plus GST) and your advisor can determine your allowable usage. In this situation it is ideal for leasing.
More Car for Less Money.
Getting the ultimate BMW of your dreams often will come down to a payment. When you purchase you will finance or pay all the taxes up front. Again, don’t get me wrong, cash is always king, but the average BMW client will trade his or her car within three to four years. This means you will have to leverage the risks of depreciation. BMWs do have a tremendous track record of resale but certain market conditions or an accident to your BMW can leave you at risk. Again, the lease will allow you to move up your BMW more frequently and know the end value when you take delivery. If the market conditions do not meet your residual buyout you don’t have to worry. Just return the leased vehicle and pick up your new one.
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I Own My Trade-in Vehicle.
This is where you need to evaluate cash flow and tax savings from your trade in vehicle. The higher the value of your trade-in vehicle is, the more tax savings you’ll enjoy with your new vehicle purchase.
E.G $65,000 New BMW
$35,000 Trade-in price
$30,000 Net price difference.
Tax rate is 17% on $30,000
You save $5,950 in taxes by purchasing this vehicle or a $2,450 savings if you use all of your trade as down payment on a lease. The higher the trade-in value, the more benefit it is to trade unless you want cash flow. The less the value of the trade-in vehicle, the less the tax benefit is to trade, and therefore leasing becomes more of an option.
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I Keep My Cars For 10 years.
Of course I never like to hear these words as the Sales Manager, but the reality is there are some clients who do like to have a longer term approach to owning a BMW. Definitely you should consider purchasing or financing with the intent to own it for a long period.
Conclusion.
Leasing is really just another way of financing the cost of owning a vehicle. All vehicles are a depreciating asset, and what most customers want to minimize is the cost of driving a vehicle. The lease will defer paying all taxes upfront, guarantee an end value and allow you to pay for what you use. You also have the first option to buy out the lease at maturity and often you may have equity at your lease end to help you into your next BMW. Our maintenance and warranties on your BMW also fit into the lease terms so that your expenses are minimal during the lease. Lease or buy? Remember, there is no wrong answer.
