When you stroll onto a dealership lot, car salesmen do everything they can to gain your interest in making a decision about what car you want and how you want to obtain it. That in itself isn’t a decision to be taken lightly; after all, you’re going to be driving the vehicle for at least the next few years. But, what’s more important is whether you decide to purchase the car or lease the car. Both options have their benefits and downfalls but which one is really right for you, your family, and your current financial situation?

To put things simply, purchasing a car means that it’s yours to do what you wish – as long as you keep up on your loan payments, of course. If you want to install a custom sound system, make mechanical upgrades, or even repaint it, you’re free to do so. But, you’ll also be burdened with making a sometimes hefty down payment, paying for repair costs that occur later in the life of the vehicle once the warranty coverage has expired, and you have to consider how much value the car will lose between the time you purchase it and the time you decide to sell it and trade it in for a new vehicle. When you lease, you don’t have to worry about the aforementioned burdens, as they typically have smaller down payments, and carry a full warranty through the entirety of the lease. But, on the other hand, you’re responsible for any excess wear and tear, mileage that exceeds your predetermined allotment, and have zero equity in the vehicle. Those who choose to lease a vehicle typically pay less in sales tax, but usually need a higher credit score and often end up paying more for insurance while the car is in their possession.

That’s just the tip of a very large iceberg, though, as there are a lot of different things that you need to be aware of if you want to make an informed decision. Your credit score will even play a factor in which options are available to you and what the end cost of purchasing or leasing a car will be. So, we’ve put a guide together that covers the pros and cons of purchasing and leasing, as well as information that will help you decide which option is best for you before you even head over to your local car dealer.

Table of Contents

-Pros and Cons of Buying and Leasing

-Leasing Costs

-Insurance for Leased Cars

-Taxes for Leasing vs Buying Cars

-Financing vs. Leasing Cars

-Credit Score When Buying or Leasing

-Age Requirements of Leasing or Buying a Vehicle

-Leasing vs. Buying for Business

Pros and Cons of buying vs. leasing

The decision to buy or lease is a difficult one, as the financial implications vary depending on the vehicle in question, and your individual situation. That said, there are pros and cons to owning and leasing, and all should be weighed out accordingly before ultimately making a decision.

Pros and Cons of Buying a Car

Pros of Buying a Car

1. You own the vehicle and can modify it as you see fit
2. You’re free to sell or trade when you like as long as the loan is paid off or can be paid off with proceeds from selling or trading
3. The car will depreciate, but you will be free to use its current cash value as you see fit
4. No mileage limitations outside of the extra depreciation from exceeding average mileage over the life of the vehicle
5. No upfront expense for wear and tear.
6. You keep the car as long as you like once it is paid off and can use the equity to help pay for your next vehicle
7. More economical over the long term compared to leasing
8. Once the load is paid off, you can continue to drive the vehicle without any monthly payment (outside of insurance) for as long as you like.

Cons of Buying a Car

1. higher down payment is usually required
2. Payments on a loan are generally higher than that of leased vehicles
3. If you no longer want or need the vehicle at the end of the load, you must sell or trade it.
4. Standard warranties don’t usually extend through the entire loan period, so you’ll be responsible for any necessary repairs once the warranty as expired
5. More of your cash is tied to the vehicle and depreciates in value over the life of the vehicle

Pros and Cons of Leasing a Car

Pros of Leasing a car

1. Minimal down payment
2. Lower monthly payment compared to purchasing
3. Less sales tax
4. Better equipped for the monthly cost – you’re able to drive a car that would otherwise be outside of your budget
5. You can get a new vehicle every two or three years
6. Repair costs are usually covered under warranty during the extent of the lease contract
7. Some manufacturers include free general maintenance (fluid changes, tire rotations, etc.)
8. Most contracts allow the option to purchase the vehicle at the end of the lease, with a price reflective of the depreciation accrued over the length of the lease.

Cons of Leasing a Car

1. Mileage allowance (usually between 10,000 and 15,000 per year)
2. Fees for going over mileage allowance
3. No equity in vehicle
4. Fee for early termination of lease contract
5. Customization or modification generally isn’t allowed and must be reversed prior to surrendering the vehicle at the end of the lease period.
6. You are responsible for any damage deemed to be outside of the normal wear and tear and will be charged for such at the end of the lease
7. Lease contracts can be confusing and need to be reviewed carefully before signing to avoid the potential for unexpected fees later
8. Requires good credit (no buy-here-pay-here leasing options for less-than-stellar credit) or hefty security deposit for those with lower credit score
9. Potential for higher insurance costs with high level of liability coverage or the need for Gap insurance coverage

To sum it all up, it's better to lease a vehicle if you’re someone who drives less than 12,000 miles per year and if you prefer to exchange vehicles every few years. Leased cars often have cheaper monthly payments which means you can get a car that’s better equipped without exceeding your budget. Leased cars are typically under warranty while in your possession, so it’s not likely that you’ll have to pay for any unexpected repair costs. The downside to leasing is that you have no equity in the vehicle while it’s in your possession, you must turn it over at the end of the lease contract (unless the option to buy is available,) and insurance is typically more expensive. But, at the same time, it also gives you the freedom to get a new car every few years without having to deal with the hassle of selling or trading in the vehicle.

It’s typically better to buy a car if you plan to modify it in any way, travel more than 12,000 miles per year, or plan to keep it for longer than a few years. The down payment for purchasing a vehicle is typically higher than that of leasing a vehicle, but once your loan is paid off, the car is yours to do with as you wish. It can also be modified while it is financed without penalty. But, when it comes to purchasing, you’ll also be responsible for out-of-warranty repairs and any needed maintenance.

How many miles can you drive when you lease a car?

The number of miles that you can drive in a leased car will vary depending on the contract, but most leases typically allow 12,000 miles per year, 24,000 miles on a two-year lease, or 36,000 miles on a three-year lease. At the time of signing, you can usually negotiate for a higher mileage allotment, however, this usually increases the monthly lease payment and, ultimately, the total cost of the lease. It is usually cheaper to pay for extra mileage up front than to pay for excess mileage at the end of the lease. Rates for excess mileage varies by contract and manufacturer, but $.25 per mile isn’t unheard of.

Can you trade in a lease for a new car?

A lease can only be traded for another car without penalty at the end of a lease in most cases. However, you can usually turn in your leased vehicle early if you’re willing to pay a penalty for terminating the lease early. Manufacturers have also been known to run special promotions that will allow you to trade in your lease for a new lease early without penalty, but this only happens on occasion and isn’t something you should plan on when deciding whether you should lease or purchase.

Leasing Costs

Typical costs associated with leasing a vehicle include the monthly payments, various local and state taxes, Insurance premiums, various fees set forth by the leasing company or dealer, and in some cases, a security deposit.

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Car lease buyouts typically come in two forms: Early-lease buyout and lease-end buyouts, both of which have their own benefits and downfalls depending on your situation.

Early Lease Buyout

An early lease buyout is an option included in some leases or often offered later on by leasing companies that will allow you to purchase the leased vehicle prior to the end of the lease. This can be a good or bad thing, depending on the situation. With an early lease buyout, the total cost of purchase will include the residual value of the vehicle at the end of the lease, how much is still owed on the lease, and any extra depreciation accrued over the life of the loan up to the point of early buyout. You’ll also have to pay other fees and costs associated with purchasing a vehicle. Early lease buyouts aren’t always available throughout the life of a lease and can be limited as the leasing company sees fit. Usually, the initial and final periods of the lease are blackout times for early lease buyout, but it’s not unheard of for leasing companies to contact lessees toward the end of a lease to offer an early buyout option.

Early Lease Buyouts aren’t usually credited with being good deals as there is usually additional depreciation fees that could. This could be a viable route, however, if you’re expecting to pay additional fees at the end of your lease due to going over your mileage allotment or if there is excessive wear and tear due to lack of maintenance.

Lease-End Buyout

A lease-end buyout is more common than an early lease buyout and is typically a better deal in the long run. If you choose to purchase your leased vehicle at the end of the leasing period, the cost will be determined by the residual value (or expected market value) that was set at the time the lease originated. But, there is something to watch out for when deciding whether or not to opt for a lease-end buyout. If the car has depreciated more than expected, and is worth less than the predetermined residual value, then opting for the buyout will result in you paying more for the car then what it is worth. In this case, you can try to negotiate the price down to current market value, but it’s usually best to just walk away unless you owe even more for additional fees or costs due to excess miles or wear and tear.

If the true market value of the vehicle is higher than the residual value that was set at the time of signing, then a lease-end buyout could be a good deal. But, to know for sure, you’ll need to determine all of the extra costs associated with purchasing the vehicle. This includes the costs of financing if you can’t or choose not to pay the full price outright, as well as any other fees charged for the buyout. If there isn’t another vehicle you’re interested in, your current vehicle is still in good condition, and the cost to purchase isn’t more than the car is worth, then a lease-end buyout may be ideal for you.

How Much Does a Car Depreciate Per Year?

Car depreciation is tricky because it varies depending on the make and model, original purchase cost, overall condition, mileage accrued, wear and tear, known reliability, and the age of the vehicle, among other things. Depreciation of a new car begins the moment you purchase it and continues to accrue throughout the life of the vehicle. On average, a new car will depreciate by as little as 11 percent or as much as 25 percent per year and as much as 60 percent over the first five years of ownership.

Insurance for Leased Cars

You didn’t think that you would get out of paying for insurance on a car that is leased, did you? Just like a car that is financed or purchased, you must seek out and obtain insurance for a leased car. But, unlike insuring a financed car, a leased car can be more expensive and may even require extra coverage known as Gap insurance.

What Kind of Insurance do I need for a Leased Car?

A leased car generally requires the same insurance as a car that is financed. Often referred to as “full coverage” you’ll be required to obtain both collision and comprehensive coverage. However, there is one caveat, and that is “gap” insurance. When leasing a car, you’re often required to obtain gap insurance to cover the difference between the cars cash value with depreciation and what is actually owed on the lease contract in the event that the leased car is considered a total loss. Some leasing companies will require you to obtain gap coverage yourself, but a large portion of companies purchase a master plan for all cars they lease. In this case, gap coverage is either wrapped into the price of the lease or sold to you at the time of lease as a “gap waiver.”

Is it Cheaper to Insure a Leased Car?

If you’re not under any obligation from the leasing company to have certain liability or property damage limits, then you will find that there is no difference in the cost of your general auto insurance policy (outside of purchasing gap insurance, of course.) But, most leasing companies require more than the state minimum liability limits, so you might find that insuring a leased car is more expensive compared to that of a financed car if you usually go with the minimum limits. Typical requirements include a $100,000/$300,000 bodily injury liability limits and at least a $50,000 property damage liability limit – both of which are more expensive than the minimum requirements in most states. Leasing companies often require a maximum deductible of $500 for both comprehensive and collision coverage.

Is Insurance Included When You Lease a Car?

Some Leasing companies will offer to include insurance as part of the car lease. However, this shouldn’t be taken at face value as its more about convenience than anything and is typically more expensive than sourcing your own policy. Just like the way Milk, Eggs, and other basic household foods are more expensive at gas stations, insurance offered by leasing companies follow the same suit – you pay more because of the convenience of not having to hunt down your own policy. At the very least, compare the rate of the insurance that’s offered with quotes from private companies to see which is cheaper.

Why do Leased Cars Require Higher Liability Limits?

Higher liability coverages are required by most leasing companies as a way to protect themselves. State laws allow liability for an accident to be placed on the driver of the vehicle and the owner of a vehicle. When you lease a car, the leasing company actually owns the vehicle and therefore can be held liable for damage, injury, or death resulting from an accident caused by someone in a leased vehicle. Since it’s easier to get money out of a company than it is an individual, most people file lawsuits against leasing companies for compensation after an at-fault accident involving a leased car.

Taxes for Leasing vs. Buying Cars

Whether you lease or buy a vehicle, there will be taxes that must be paid in the process. This includes things like sales tax and other local taxes, but there are also certain deductions available for both.

Do you have to pay the same amount of sales tax on a leased vehicle that you do a financed vehicle?

Leased vehicles are subject to sales tax just like financed vehicles, however, when you lease a vehicle you only have to pay sales tax on the value of the lease, not the entire value of the car. As an example, if the three-year lease cost of a $40,000 car is $23,000, you’ll pay your state’s sales tax rate on $23,000. When you finance a vehicle, you pay tax on the sales price of the vehicle at the time of purchase (normally worked into the financing.)

Can you deduct tax on a car lease?

In general, you can take a tax deduction on a leased car that is used for business purposes just like you would a car that you have financed or owned. However, you must still keep track of the amount of time the car is actually used for business purposes. If your use of the car is 50-percent business and 50-percent personal, you can only deduct 50 percent of the cost of the lease as a business tax deduction. It’s also important to note that you cannot deduct the full percentage of business use at one time, as the total deduction must be spread across the life of the lease.

For example, if the cost of a three-year lease is $15,000, including your down payment, and the car is only used for business, then you can only deduct $5,000 each year. There are many stipulations in the tax codes when it comes to deductions, however, so every situation is different. It’s best to contact a tax professional to assist you in filing your taxes to make sure you adhere to all IRS codes for deducting lease payments from your business expenses.

Are there any real tax advantages to leasing a car over purchasing?

Not really. Outside of only paying sales tax on the cost of the lease as opposed to the value of the car, the only other advantage is that there is no taxable gain or loss on a leased vehicle at disposition, so there is no risk of having to pay income tax like you do when you sell a business vehicle for a gain when it’s time to dispose of it.

Common Taxes and Deductions for Leasing and Buying

Leasing

1. Sales tax is based on the cost of the lease
2. Percentage of the cost of a leased vehicle used for business, including mileage, maintenance, repairs, and monthly payments can be deducted with each tax filing.
3. Since you’re paying for the depreciation of a car when you lease it and don’t actually own it, you cannot deduct depreciation when you file your business taxes.

Buying

1. Sales tax based on sales price of vehicle
2. Property Tax (in some states)
3. Most business-related costs of ownership can be deducted at each tax filing, including maintenance, repairs, and mileage.
4. Since sales tax is paid up front at the time of purchase, it can all be deducted with the first tax filing after the car is purchased.
5. Depreciation can be deducted from taxes with each filing.

Section 179

Section 179 is a special tax code put in place to help small businesses by allowing them to deduct the total cost of a purchase, including leased and financed cars, that are used for business purposes up to a certain limit. Its main purpose is to allow businesses to take a full depreciation deduction for certain assets, including leased and financed vehicles, in the first year of ownership instead of deducting depreciation over the long term.

Section 179 Limitations

1. Total depreciation for a passenger vehicle, truck, or van through section 179 for 2017 is limited to $11,060 for cars or $11,160 for trucks and vans.
2. SUVs or crossovers with a GVWR above 6,000 pounds but less than 14,000 pounds can be expensed up to $25,000.
3. Vehicles must be used at least 50 percent of the time for business, and the limits are reduced by the corresponding percent of personal use if business use is less than 100 percent.
4. The vehicle must be purchased or leased in the tax year and put into service to qualify for section 179.
5. Any credit received by trade in at the time of purchase or lease must be deducted from the total cost of the vehicle calculating a section 179 deduction.
6. To qualify for Section 179, the company must have been in business for at least two years. The business and owners must have good credit, and the vehicles purchased or leased must be titled in the company name.

Financing vs. Leasing Cars

Unless you’re going to buy a new car outright, your other options for acquisition include leasing or financing. When you finance, you’re actually purchasing the car and paying for it over a period of time (typically 3 to 5 years.) A financed car is yours to do with as you wish as long as you make the payments. Leasing a car, on the other hand, means you never actually own the car and will have to return it at the end of the leasing contract. These cars cannot be modified or altered in any way but can be a viable option for someone who is interested in having a new car every 2 to 3 years.

Is a Car Lease Considered a Loan?

A car lease isn’t a loan by definition. With a load, you borrow money from a financial institution to buy a vehicle. With a lease, you’re paying a rental agreement for the use of the vehicle. However, a lease – just like a loan – is considered debt until the contract is fulfilled and the vehicle is either returned or purchased in accordance with the leasing agreement. The one exception to this is when a car lease is within 10 months of being paid off, at which point, it is no longer considered in your debt-to-income ratio.

What Does It Mean to Finance a Used Car?

Financing a used car is no different than financing a new car, in the sense that you’re receiving a loan from a financial institution (or the dealer’s in-house financing network) to purchase the vehicle you have chosen to purchase. Normally, there is no collateral offered to receive the loan, outside of the security of the vehicle itself, but the financing company may request a co-signer – someone else that’s also liable for payments – if your credit score and history falls below their minimum standards for financing. When you finance a used car, the amount of the loan is often lower than that of a new car, but the interest rate can be higher depending on the lender, the value of the model, and your creditworthiness.

Buying a New Car with Negative Equity

Negative equity occurs when you owe more on your current loan than what the car is actually worth. For example, if you owe $20,000 on your current vehicle, but it’s only worth $15,000, then you have a negative equity of $5,000. There are a couple of ways that you can proceed in purchasing a new car while trading in your current car, but the bottom line is that you’ll still have to make up for that negative equity in one way or another.

1. Roll the negative equity into a new car loan: The usual method of dealing with negative equity is to roll it over into the loan for your new vehicle, but when you do this, you’re still “under water” as the loan for the new car is now considerably higher than what that new car is really worth. You’ll likely find yourself in the same situation down the road if you decide to trade in once again. It’s an easy out, but not usually ideal in most financial situations.
2. Pay the Negative Equity on your Own: Another option is to pay off the negative equity yourself when you decide to trade in the vehicle. You can determine this by deducting the amount the dealership is offering you for your current car from the amount that you owe on it. Pay the difference to your current financer and move on with your new car loan.
3. Take a personal loan to cover the negative equity over a period of time: Instead of lumping your negative equity into your new car loan, you can take out a personal loan from your bank to consolidate the negative equity and maybe even pay it at a lower interest rate. This will prevent you from having additional negative equity in your new car down the road and can be cheaper, depending on the interest rate of the personal loan.
4. Don’t trade in your vehicle at this time: If you have negative equity, and can’t make up the difference yourself. You could postpone trading it in until the amount of the loan is less than what the car is worth, or the loan is paid off in full. Of course, if your needs in a vehicle have changed, you may not have this option, but if you’re just looking to get something new, this is the most financially sound thing to do in most cases.

Note: Watch out for advertisements and dealers that say they’ll pay off your current loan with trade in regardless of what you owe. While this may sound like an easy out to some negative equity, it is usually misleading. You may believe that the dealership is covering the cost of any negative equity, but they are actually rolling it into the principal of your new loan in most cases, and ultimately starting the snowball effect that leads to even higher amounts of negative equity down the road.

Should I Lease or Buy with a Car Allowance

If you have a car allowance, you’re free to lease or purchase a new car. Employers often offer a car allowance in place of a company car to save on “company car tax,” but in most cases, you’ll also be using that vehicle for work-related purposes. That means you need to take a few things into consideration.

1. Mileage: If your job involves a lot of driving, say more than 10,000 miles per year, you’re generally better off purchasing a car as there will be no risk of paying overages for excess miles like there is with a lease.
2. Job/allowance stability: You need to determine if your current position and that allowance are stable. If there is a risk of losing the job or allowance in the near future, you may want to consider purchasing as you can turn around and sell the vehicle later if you’re unable to afford it in the event that you happen to lose your job or car allowance. With a lease, you’re generally stuck with it until the end of the contract, which could put you in a tight spot if you suddenly lose your job or that allowance and can’t afford to continue making the payments.
3. Do you need more luxury or amenities? If your job involves impressing people or transporting picky clients, a lease may be a better idea. When you lease, you can typically get a better equipped or more luxurious model for a lower payment compared to buying. So, if impressions are important and you need a better-equipped vehicle for work, leasing can save you money in the short term while providing you with a more luxurious or advanced vehicle as the payment won’t be as high, and you won’t have to contribute as much over the life of the vehicle.
4. Will the vehicle be subject to excessive wear and tear or the potential for damage? When you lease a vehicle, you’re ultimately responsible for any damage or excessive wear and tear that accrues of the life of the least. If your car is being used for work, and it’s at a high risk for damage or wear and tear, you may be better off purchasing a car in the long run. That way you won’t have to pony up for repairs when it’s time to turn the car back in.

Leasing vs Buying Calculator

Here is an example of a calculator that will help you compare the costs of leasing compared to buying. You can access the document and input your own figures here.

Credit Score When Buying or Leasing

Regardless of whether you’re buying or leasing, your credit score will come into play. Your credit score will play a determining factor in the interest rate you pay on a leased or financed car, but it will also have implications on how much you have to put down at the time of acquisition and what options you’ll have when it comes to purchasing or leasing.

What Kind of Credit Score do I Need to Buy a car?

The credit rating you need to purchase a vehicle depends on a number of factors that include the requirements set forth by each individual lender and the amount of the loan itself. Some lenders may offer financing to those with a minimum credit score of 680 while others will offer a similar loan at 640.

There are also subprime lenders that will finance you if your credit score is much lower, but are generally offered by “buy here, pay here” places or high-risk lenders. Some subprime lenders will offer you even with a low credit score, but you’ll pay significantly more in interest – sometimes as high as 25-percent APR. Loans for a higher amount will often require a higher credit score as there’s significantly more risk to the lender.

What Kind of Credit Score Do I Need to Lease a Car?

Leasing a car typically requires a credit score around 620 or better, which puts you in the “near-prime” credit category. Even with a 620 credit score, you’ll likely have to offer up a higher down payment and pay a higher interest rate on a lease than you would if your credit score fell into the “prime” category (680 to about 740.)

Some leasing companies will lease lower-end models to those with scores below 620, but you’ll have to pay out an even higher down payment and will likely take on a higher interest rate as well. Like purchasing a car, however, most leasing companies will allow a co-signer that supplements your responsibility and will have to make your payments if you cannot.

Can I Lease a Car Without a Credit Card?

A credit card isn’t typically required to lease a vehicle, but having one or more credit cards in good standing will help to increase your credit score and tell leasing companies that you’re financially responsible. However, if you’ve established good credit without using credit cards (taking out and repaying loans responsibly) and your credit score still falls within the leasing company’s requirements, you should have no issues leasing a vehicle without a credit card.

Can I lease a Car with Bad Credit?

Some leasing companies do offer to lease to those with bad credit. However, just like purchasing a car with bad credit, you’ll be subjected to higher interest rates and will find that getting approved for a car lease isn’t as easy as it would be if you have good credit. Leasing companies that will work with you may require larger down payments to help limit risk or may request a security deposit.

Payments are also typically higher, and chances of getting a “little or no money down” leasing deal are slim. In some cases, it’s better off to purchase than to lease when you have bad credit, so make sure you weigh out your options before making a decision.

Is Leasing or Buying a Car Better for your Credit?

While leasing a vehicle is different from taking out a loan for a car, when it comes to credit, leasing or buying will have the same effect. If you make your payments on time, every time your score should improve over time. Meanwhile, if you miss a payment, you will likely see a negative effect on your credit score. However, when you finance, you’ll see the entire value of the car show up as debt on your credit report while the debt for a lease will reflect the actual amount of the lease, not the value of the vehicle. This means that, depending on your situation, a car lease could have less of a negative effect on your credit score initially.

Age requirements for leasing or buying a vehicle

Age requirements do exist when trying to lease or finance a car. If you’re buying a car outright, your age won’t matter much as long as you’re a legal driver. However, leasing and financing options are both contractual, so you must be old enough to enter a binding contract legally to lease or finance.

Who can lease a car?

When you lease a vehicle, you’re entering a legal contractual agreement with the manufacturer or leasing company. This means anyone under the age of 18 years old is generally restricted from leasing a vehicle. Above the age of 18, anyone can enter into a lease contract as long as the meet the requirements set forth by the manufacturer or leasing company.

What are the age requirements for driving a leased car?

Typically, leasing companies are strict about who can actually drive a leased vehicle, and in most cases limit driving to the lessee and – most of the time – their spouse. Some companies will allow those of legal driving age below 18 to drive a leased vehicle, but this usually requires special permission and for the teen to be listed as a named driver on the lease. There are some companies that will allow a parent and teen to co-lease a vehicle, which will allow automatically name the teen as a driver on the lease contract.

Is it better to lease or buy a car for a teenager?

As you’ve probably read above, leasing companies are pretty strict about letting those under the age of 18, or those not listed as a named driver, to drive a leased vehicle. However, there are other reasons why buying a car for a teen is better. Teens are generally very active drivers and are getting their first real sense of freedom, so the mileage limitations of leased vehicles generally make them far from ideal as it’s likely the teen will exceed a leased car’s mileage allotment. Then there’s the fact that the car must be kept in good condition, which is a tall order for someone with little driving experience behind the wheel.

Teenagers also like to go with the trends and will likely want to upgrade certain parts of the car like the wheels, sound system, or even make minor alterations to the drivetrain. With a leased vehicle, these kinds of things are strictly prohibited. In short, it’s typically best to find a used but safe car for your teen when the time comes. There is less risk for extra financial obligation down the road, and you’re able to choose whether or not to repair the car if it breaks down, is involved in a minor accident, or if it is subject to excessive wear and tear on the inside.

Leasing vs. Buying for business

Car leasing and financing also extend to businesses as well. In general, the terms of both are the same for businesses, but the lease or loan will be under the name of the business instead of an individual. Certain tax savings can be associated with leasing through a business, but like individual leases, excess mileage charges can snowball quickly, so be sure a lease fits the situation before signing on the dotted line.

Lease vs. Buying a Car for Small Business

Leasing

1. Total deduction for tax paid accrues over the life of the lease
2. All miles can be deducted from your business taxes as long as they were accrued for business use.
3. If your repairs and maintenance are included as part of the lease, the cost cannot be deducted from your business taxes

You cannot deduct the depreciation of a leased vehicle on your business taxes

deductible at each tax filing.

Buying

1. Tax paid on a car purchase for your business is deducted in a lump sum in the year or quarter in which you purchased the vehicle.
2. All mileage accrued for business can be deducted with each tax filing
3. You can deduct depreciation as set forth by the IRS for a car that is purchased through your business and used for business purposes

Should I Lease a Car Through My Business?

When choosing whether to lease a car through your business or under your name personally, the first thing to take into consideration is credit ratings. If your business has better credit rating than you, you’re likely to get a better leasing deal if the car is leased through your business. You should also take into consideration whether or not there will be personal use. Current IRS laws require you to pay tax on fringe benefits, and the use of a company car for personal use is considered a fringe benefit. As such, if you use a vehicle leased through your business for personal use 50 percent of the time, you’ll be taxed on 50 percent of the lease value on your personal taxes. On the flip side, a car lease in the name of your business will help build the businesses credit even further while protecting your credit at the same time.

How to Lease a Vehicle for your Business

Leasing a car for your business requires the same general application process, however, you’ll need to provide different information in comparison to a personal lease. The dealer or leasing company will need to see business bank statements, proof of identification, proof of address, previous business returns, income/loss statements, and in some cases, documentation that provides information about your account receivables and account payables. A business credit report will also be ran. Of course, all leasing companies have different policies, so there may be additional documentation required for your individual situation.