Lease or Buy?

“Should I lease or should I buy my automobile?”

This is one of the most common questions our clients ask us.

Generally, when purchasing an automobile, you can either lease it, finance it through the auto dealer or your financial institution or pay cash.

Things to consider:

Interest Rates: Check the interest rates on the lease. At times, auto dealers will offer very low or 0% financing, which may impact your decision. Compare these rates to the finance rates at the dealership or you bank. You should also be aware that you will pay GST and other potential provincial sales tax on the interest component of the lease because all costs are built into the monthly leasing costs. This will not be the case with a finance purchase.

Future Borrowing Requirements: Consider whether or not you will be financing in the future. Financial institutions treat leases different than conventional debt financing and a lease may provide you with more leverage and future borrowing power because you will not show any debt related to a car loan. However, if you finance your vehicle you may actually have increased borrowing power during the end of the finance term due to the equity in your vehicle, something you will not have with a lease.

Cash Flow: Have a look at your monthly budget and determine what your cash flow can afford. The bottom line is that a taxpayer will often go with the option that provides for the best monthly payments, irrespective of the costs. Leasing can provide for better cash flow due to the buyout at the end of the lease and often requires a minimal down payment.

Lifestyle: Do you want a new car every four or five years? In this situation, a lease is often more attractive because you do not have to deal with the hassle of selling your vehicle, a hassle which often outweighs the added costs of leasing.

To learn more about whether you should Lease or Buy, please give us a call.

NOTE: The Shannon & Company 'Tips' are NOT intended to cover all tax issues. You should talk to your Shannon & Company professional before making any decisions regarding the information found here.


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