Behind The Wheel

Pros And Cons

Leasing is a good option for you if:

  • You plan to use the car or fleet for business purposes. Interest on lease payments is deductible.
  • You like to drive brand-new models every two years. It's easy to roll over a lease from one new car to another.
  • You'd rather keep your capital in the bank.
  • You and your employees can live within the lease's mileage restrictions. Calculate the average mileage you and your employees drive on business each year, and negotiate a cap. Although some lessors are extending their limits, make sure you read the fine print for the exact figure.
  • You prefer to drive a luxury car but have an economy budget. High-end vans, light trucks, sport cars and exotics can be within your grasp with no-down-payment leases.
  • You need to make a statement for image purposes. Like it or not, we are judged by the cars we drive; the more expensive-looking the car, the more success we are perceived to have achieved.
  • Arguments against leasing? Here are a few points to consider:
  • Don't lease if you want to own the car at the end of the term. In addition to the payments you've already paid, you'll be charged the residual value before you can take possession of the vehicle.
  • Don't lease if vehicles take a beating in your line of business. Wear-and-tear charges can cripple your budget when you turn the cars in.
  • Don't lease if you plan to keep the car for more than four years; otherwise, you'll be paying for the same vehicle twice.
  • Don't lease if you are not sure you can make the monthly payments. Terminating a lease early usually means being liable for the difference between the value of the car and the amount you've already paid. Ask what the penalties are before you sign.
  • Don't sign a lease until you've talked to a finance company about insurance. If you damage the car, your own insurer may only pay its current cash value, and the lessor may expect you to pay the penalty for early termination. It's typical for the finance company to provide "gap protection" for free and pay the dealer the difference you owe. In addition, the dealer may require you to carry higher insurance.
  • Don't lease if you plan to keep the car longer than the life of its warranty. You'll be responsible for repairs after the warranty runs out.

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This article was originally published in the January 1996 print edition of Entrepreneur with the headline: Behind The Wheel.

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