Should I Buy or Lease a Luxury Car?


The CarsDirect editorial team is dedicated to providing our readers with the latest on new and used cars, expert opinions on which vehicles make the grade, and all the fun stuff in between.

, - July 15, 2014

When shopping for a luxury car, you may have the option of purchasing or leasing. Leasing is an option that most people don't know much about, but depending on what your preferences are, leasing can offer some advantages over a traditional purchase.

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For people that like to drive a new car every couple years, leasing will probably save you money. Cars owned by individuals tend to depreciate faster than leases, so even though you don't own the car when you lease the cost of having the car in the short run is about the same. When the lease is up, you just turn the car back into the dealership; you don't have to deal with the trouble of selling your car privately or the process (and occasionally disappointing value) of trading in. People that tend to keep their cars for long periods of time will save in the long run if they buy, but you're eventually going to be responsible for repairs and maintenance once your car's manufacturer warranty runs out. Generally, leased cars are returned before the factory warranty is exhausted so you never have to worry about shelling out cash to fix any problems that come up. However, one thing to remember about a lease is that it's never going to be paid off, which means you'll always have a monthly payment to make. People that enjoy the feeling of owning their car free and clear may be disappointed with a lease.

People that drive long miles shouldn't consider a lease. Most leases include a mileage limit; so if you're putting 15,000 or 20,000 miles on your current car, you're likely going to run over the allowed mileage of your lease which will probably incur a hefty penalty. Make sure to be mindful of your lease's mileage limits. Some dealers may offer a low-payment lease option that has a very low mileage limit. For most drivers this is going to be a bad choice. Look for a lease that has a limit between 10,000 and 15,000 miles a year. Most average drivers fall somewhere between those numbers.

You should also look at your current car; What kind of condition is it in? If you put a lot of wear and tear on your vehicles (dents, dings, interior wear, or any other kinds of damages) or if you often drive off-road, a lease may not be the right option for you. That's because many dealers charge a hefty fee if you beat up the car too much.

Business owners may receive a tax credit that will essentially allow you to write off most or all of your lease payment, which is great if you're using a car for business purposes. When you purchase a car for your business, you are usually only allowed to write off the interest for each monthly payment. An accountant or tax professional can best tell you which option is going to make the most sense for you when tax day comes around.

Dealers may require drivers to have special insurance coverage when they opt for a lease. The cost of such policies isn't prohibitive, but it's important to check your lease's terms to make sure what they require. Another thing that you should look for in your contract is what kind of fee they are going to charge you if you break the lease early. If you have any doubts about whether you will be able to make the payments for the entire term of the lease, you probably shouldn't take the risk.

Related Questions and Answers

What is the Cheapest Luxury Car Brand for Leasing?

The cheapest luxury car lease is going to be on a vehicle that has a high resale value. This is because lease companies use the car's resale value at the end of the lease in order to determine the payments that you'll be asked for. If the car you lease doesn't have a high resale value, the lease company will have a harder time recouping what it paid the dealership at the time of sale. The Buick Regal CXL is being offered for $291 a month, as of late 2010. If you can negotiate a lower initial cap cost, you will also be able to negotiate a lower monthly payment.

What is the Luxury Car Limit for Taxes?

The luxury car limit for taxes is the lower price limit that Congress sets for taxation of cars that are considered luxury vehicles. For 2010, this price threshold is just over $57,000. Luxury cars are taxed at a different rate than other types of cars, so a method is used for determining what is considered a regular car and what is considered a luxury car. Typically, the luxury car tax will only be charged on the price over the threshold. This means that a car that is purchased for $65,000 will be taxed at the regular rate up to $57,000, and the higher tax rate for the remaining $8,000.

The CarsDirect editorial team is dedicated to providing our readers with the latest on new and used cars, expert opinions on which vehicles make the grade, and all the fun stuff in between.