No matter if you plan to lease or purchase you will be more than likely making monthly payments. Leasing does give you a bit of relief in that your payments will be lower than if you were purchasing, however, you will never own the car. If you purchase, your monthly payment will be higher, but you will own the car after all your payments are complete.
You may hear that leasing is better by some of your family or friends and then you will hear some that buying is better. Before you make your own decision, you should learn the similarities and difference of both options.
When you decide to purchase a car, most people have to apply for a loan. Not too many people have enough cash lying around to pay for a brand new car; therefore, they apply for a loan. The loan consists of two charges, the principal charge and the finance charge. The principal charge is the total value of the car and the finance charge is the interest that is placed on the loan. You should shop around and find the best possible interest rate before applying for a car loan; you may find that you can receive lower monthly payment through your own bank than with the car dealership.
Remember, when you are making monthly payments to purchase a car, the car is yours as long as your make your payment. You can travel any place you would like to go and make any additions that you would like to your car or other customizations. It is your car unless you default on the loan and then the car can be repossessed by the loan company that gave you the loan to purchase the car.
There are a couple of disadvantages to purchasing a new car. Your monthly payment will be higher than leasing, is the number one disadvantage and the other is that you will have to sell the car if you do not want the car any longer.
When leasing a car you will have to make monthly payments that consist of two charges, a depreciation charge and a finance charge. The depreciation charge is the price that the car has gone down in price while you were using the car, this will give the dealership compensation for the depreciation value that you used. The finance charge is of course the interest that you are paying on the term of the lease.
When you lease a car, you will never become owner of the car. You cannot make any additions or customizations to the car. You cannot sell the car or trade it in if you get tired of it. If you decide to take it back and the lease is not up, you will have stiff penalties to pay. You will also not be able to go any place you like. When you are leasing a car, you are given a certain amount of miles that you are allowed to drive during the term of your lease. If you go over the amount of miles specified then you will have to pay for every mile that you go over the original amount.
The short-term advantages of leasing are of course the fact that the monthly lease payment is quite a bit cheaper than monthly payments for purchasing. A matter of fact the payments are between 30 to 60 percent lower than most loan payments.
However when it comes to long-term advantages purchasing wins hands down, if you do not plan on keeping the leased car after the term of the lease. If you plan on returning the car at the end of the term of the lease and leasing another car, of course, you will end up paying more in the long run. You will own your car after you have paid off your loan, however, with a leased car you will have to lease another one and another one compared to driving the same owned car over the same amount of time.
Making this decision is a personal one and if you prefer to drive a new car quite often, then leasing will give you this chance even if you will never own the car. You can always sport around in a brand new car.
Today, leasing is common practice in business. Over the past two years, equipment leasing has risen approximately 20 percent, according to recent research by the U.S. Small Business Administration (SBA). And 8 out of 10 U.S. businesses lease all or part of their equipment, reports the Equipment Leasing Association.
Leasing is appropriate for just about any business at any stage of development. For start-up businesses with no revenues, smaller leases�"those of $100,000 or less�"may be better managed on the personal credit of the owners�"if they are willing to make the monthly payments.
Comparing Leasing to Buying When you buy a piece of equipment or vehicle, you usually have to pay for it in full either by using cash or by financing the balance. After you finish paying for it, you own it.
Equipment leasing, on the other hand, is essentially a loan. The lender buys and owns the equipment and then "rents" it to a business at a flat monthly rate for a set number of months. At the end of the lease, the business has several options. It can purchase the equipment for its fair market value (or a fixed or predetermined amount), continue leasing, return it or lease new equipment.
With a lease, you actually only pay for using the equipment. But at the end of the lease period, you could end up owning nothing. So why lease? The answer is simple: By leasing equipment, you leave money in the bank that can be used for other purchases. Since lease payments are usually smaller than regular loan payments, you don't have to pay out as much each month.
However, keep in mind that a lease is not cancelable like a bank loan or other debt. If you need to get out a standard loan you can sell the equipment and pay off the loan, or even refinance it. With a lease, you generally have to pay off the lease in full. So you have to be sure you make the payments when you enter into a lease.
So what kinds of equipment make the most sense for a small business to lease? According to research by the SBA, the most common items leased are office equipment, computers, and trucks and vehicles.
Benefits of Leasing Leasing equipment offers a wide range of benefits, from consistency with expenses to increased cash flow. But perhaps the most significant advantage of leasing is the ability to maintain up-to-date equipment. Leasing allows you to easily and affordably add equipment or upgrade to a complete new piece of machinery to meet future needs. This lets you transfer the risk of being caught with obsolete equipment to the leasing company.
Here are some other benefits of leasing:
•Alternative to financing - Leasing is essentially an alternative to traditional financing and can be great for companies not able to obtain business loans.
•100-percent “financing" – In many cases, leasing requires no down payment. This allows you to “finance" an entire purchase, including software, hardware, consulting, maintenance, freight, installation, and training costs.
•Ease and convenience - Applying for a lease is easy, and lease arrangements can be structured to meet your individual requirements. Equipment leases can range from $ 2,000 to $ 2 million. For smaller amounts, you can complete a brief application and receive a final decision within days�"often with no financial reports or tax returns needed. Leases for more than $100,000 generally require detailed financial information from the business, and the leasing company conducts a more thorough credit analysis than it would for a smaller
•Flexibility - Lease terms range from 12 to 60 months, depending on the equipment type. Most leases can be structured so that payments are made with operating rather than capital funds. This can eliminate or reduce capital budget delays. Leased equipment can be purchased later if capital becomes available. Plus, a percentage of the lease payments can be credited toward the purchase of the equipment.
•Fixed, predictable payments - Having fixed lease payments enables you to accurately predict the impact of equipment expenses on your cash flow.
•Conserves working capital - Leasing conserves your working capital by requiring only a minimum initial outlay of cash.
•Tax Advantages - Operating leases are generally treated as a 100-percent, tax-deductible business expense paid from pre-tax earnings instead of after-tax profits.
•Protection against inflation - Lease payments are based on the dollar's current value. And unlike bank lines of credit with fluctuating rates, your payments are fixed regardless of what happens to the market tomorrow, making it easier to budget, forecast and grow.
Working with a Leasing Companies When leasing equipment, keep in mind that the company selling the equipment simply makes a direct referral to a leasing company with which it does business. And, usually, the company selling the equipment works with more than one leasing company. So be sure to get quotes from a number of leasing firms. It’s also a good idea to ask for referrals from friends and business associates.
Additionally, make sure you understand with whom you’re dealing. Are you talking to a broker�"the person who simply structures deals, then gets them financed through any of the leasing companies he or she works with. Or are you dealing with a leasing company that is actually putting its own funds on the line?
Brokers can be beneficial because they have valuable insight about the leasing market and can help you find the best leasing solution for your needs. But as when dealing with any type of salesperson, you are responsible for handling the due diligence. Do your own homework to ensure you negotiate the most favorable lease agreement for your company.
Both Dennis James & David Springer are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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