Michael H. Lester, J.D., CPA
Business Management

1990 Westwood Blvd. #200
Los Angeles CA 90025
Phone: (310) 446-0088; Facsimile: (310) 446-0079

"TIP OF THE MONTH"
(November 1995)

Should You Buy or Lease Your Next Car?

Corporate customers used to be the primary market for automobile leasing. In fact, automobile leases were rarely advantageous for private individual consumers. This is because leases were frequently written as open-ended, and were generally more expensive in the long run. (An open end lease meant that the customer might have to pay an amount equal to several months lease payments, or more, at the end of the lease. The actual amount due depended on the value of the car at the end of the lease.)

Today, leasing a car can be advantageous even to the average private individual. One reason for this is that consumer leases are generally no longer open-ended. In addition, leases have become more competitive. The dealer usually does not finance the lease, so you must get credit from a lending institution. One disadvantage of a lease is that it may be harder to qualify for credit in some cases. Some of the advantages of leasing are:

• Lower down payment and lower monthly payments (allowing you to drive a more expensive car for less money).
• You can negotiate the length of the lease to suit your budget.
• A ready-made buyer for the car at the end of the lease.
• If you are an employee, and use your car for business, you can deduct a portion of your lease costs (employees using their cars for business cannot deduct interest on their car loans).

When you lease a car, you can negotiate the price just as if you were purchasing a car. You can compare the cost of leasing with the cost of purchasing if you have the following information:

1. Cap Cost
2. Money Factor (or Interest Rate)
3. Length of Lease
4. Residual Value (in dollars)
5. Cap Reduction
6. Current interest rate on car loans
7. Down payment required to purchase the same car

If you need help comparing the cost of a lease to a purchase and you live in the Los Angeles area, e-mail me the above information, and I will give you a hand. mhl@michael-lester.com

If you need help buying or leasing a car in the Los Angeles area, see "Gar's Cars"

As always, general advice may not apply to your specific situation, and rules change constantly, so you should get a professional opinion before relying on this information.

Read the "Tip of the Month" for October 1995.
Read the "Tip of the Month" for September 1995.

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Michael H. Lester (mhl@michael-lester.com)
mhl@michael-lester.com
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Copyright © 1995-2002 Michael H. Lester