Leasing has become the preferred way for high-end car owners to acquire their vehicles. This is mainly due to a number of factors including price, and ease of acquisition and return. When combined these factors create a winning combination for car buyers. Companies have been the biggest contributors to the leasing boom as of late, with higher end jobs offers nearly always include negotiations for a leased luxury automobile. Is there a good reason for someone to forego purchasing and lease a Mercedes? Here are some advantages when you lease:

Leases Offer Lower Monthly Payments

One primary benefit of leasing over purchasing a car is that when you lease, your monthly payments will be considerably lower. Monthly payments, which often include incentives, can sometimes be 40% lower than if the car is purchased.

No Costs for Repairs

Leases come with a factory warranty coverage so you don’t have to worry about budgeting for repairs. Most luxury brands like BMW, will even cover oil changes and brakes during the life of the lease, so the only added cost for the car, is fuel. As car loans have lengthened to up to 84 months, many people run the risk of having to shell out money when repair issues arise in addition to paying their car payment.

You Only Pay for Depreciation

A lease payment calculation is based on the difference between sale price and the residual value of the car when it is returned. At the end of the term, you have to give the car back and providing the value of the car is equal to the pre-estimated book value, there is nothing else to pay.

VAT for Business Owners

If you’ve got your own business, and it’s VAT-registered, you can lease a car, keeping it off your balance sheet, deducting the cost from your profit, and reclaim 50% of VAT.

Types of Lease Options

Personal Contract Hire (PCH) – If you seek to return the car back after your lease, a PCH lease is your best option. You lease the car for an agreed period (typically 24, 36, 39 or 48 months) and make fixed monthly payments. At the end of the contract, you return the car. If there is no outstanding issues including additional mileage, damage or extreme wear and tear on the vehicle, you walk away with no additional payments.

Personal Contract Purchase (PCP) – If you want to purchase the car after your lease expires this may be the right type of lease for you. You put down a down payment (smaller than a typical HP agreement though), and make monthly payments for the term of the lease. These payments only pay depreciation on the car, not for the car itself. At the end of the lease you have three options:

  1. Purchase the car by paying a final balloon payment equal to the car’s Guaranteed Future Value (GFV) established at the beginning of the lease.
  2. Give the car back – The GFV of the car is pre-calculated.
  3. Take out another lease.

A PCP is similar to purchasing the car with an advantage of a lower down and monthly payments, but again the balloon payment in the end will be substantial.

Payment for extra mileage

The most common lease terms we see are 24, 39 and 48 months; and the allotted miles per year for a least are 10k, 12k and 15k. Any miles over the limit will incur a penalization, which is usually calculated as a fraction of a dollar per extra mile and must be paid when the car is returned. So an important consideration if you are looking to lease is the amount of miles you drive every year.

With its lower down payment and monthly payments and quick and easy contracts, leasing will continue to hold advantages of purchasing for business owners.