What Are The Pros and Cons of Leasing vs. Buying a Car in Florida?

The basic answer comes down to three important questions that you must ask yourself: miles, time, and cash flow.  Specifically, how many miles will you drive the car? How long are you going to hold onto the car? and What is your cash flow?

MILES, MILES, MILES: The miles question is not overly important in my opinion. You are allowed 10,000 or 12,000 miles per year which will hurt if you drive 30,000 miles per year, but, frankly, you could just buy out the lease at the end of the contract.

LENGTH OF TIME HOLDING ONTO CAR: If you are turning in your car every 3 years or so, always want to have a new car, and don’t drive much, then leasing is a good option worth considering.  My wife is this way. I realized early in our marriage that she wanted a new car right around 3 years of having the car and I noticed that we were nearly even with our loan payoff amount and the value of the car, so I just stopped buying her a car and started leasing them for her.  It made more sense for her. We were now just financing the depreciation of the car versus the entire car.

CASH FLOW: One of the benefits is cash flow. You are paying less in monthly payments because you are only financing the depreciation of the car. You are paying the difference between the car’s new car value and what it is the expected value when the lease ends (in 3 years) plus interest (yes, there are finance charges even though the salesman says there is not).  Plus there may be some tax benefits if you are using it for work purposes!

Pros or Benefits of Leasing

• You drive the car while it is new and during its most trouble-free years.
• I can drive a more expensive car!: Some people choose to lease a car because it allows them to drive higher-end cars for a more affordable monthly payment. Plus, a two-to-three-year car lease allows drivers to easily and frequently upgrade.
• Depreciation Protection: Leasing helps protect you against unanticipated depreciation. What happens if the market value of your car unexpectedly drops more than you expected? Your decision to lease will prove to be a good financial move because that is the bank’s problem now. However, if the leased car holds its value well, you can typically buy it at a good price at the end of the lease and keep it or decide to resell it
• You’re always driving the latest and newest model car/truck that’s usually covered by the manufacturer’s new-car warranty.
• Maintenance included! The lease may even include free oil changes and other scheduled maintenance. Why? Because the dealer figured out that it is easier to certify the car for resale at the end and they can recoup their money!
• Less money out of pocket! You can drive a higher-priced, better-equipped vehicle than you might otherwise not be able to afford plus better cash flow because of lower payments.
• Your vehicle will have the latest active safety features.
• You don’t have to worry about fluctuations in the car’s trade-in value or go through the hassle of selling it when it’s time to move on. You’ve already locked in the future expected value!
• There could be significant tax advantages for business owners.
• At the end you just drop off the car at the dealer and you get nothing back. Why? Because you were effectively just renting the car and just like if you rented an apartment, you walk away after the lease is done.

Cons or Disadvantages of Leasing

As attractive as a lease may appear, there are a number of disadvantages:

• You’ll pay more for insurance! According to Florida Statute § 324.021(9), you will need $100,000/$300,000 of bodily injury liability insurance and $50,000 of property damage liability if you are the lessee. So unless you already have high coverage limits, you will need to buy additional insurance.
  • Florida law and the lease car insurance requirements for your specific situation may vary, but here are some of the definitions for each of the coverages for vehicle insurance:
    • Personal Injury Protection: A term used to describe coverage for health expenses associated with a car accident. This typically covers injury for insurance holders and passengers.
    • Property Damage Liability: PDL coverage helps cover the repair damages caused to another person’s vehicle or property in an accident.
    • Bodily Injury Liability: This covers the medical cost of people who are injured, aside from yourself. This coverage also helps cover payment for legal defense if you are sued for any damages during a car accident.
    • Lease GAP Insurance: GAP insurance or “Guaranteed Auto Protection” insurance helps cover the cost of the vehicle in the event that an accident has occurred. GAP insurance is not a substitute for full auto insurance, so be sure you opt for full auto insurance before you begin driving in Tampa, Florida. GAP insurance, which covers the difference between the current value of your car versus the remaining balance owed. Many leased cars have this type of insurance factored into the cost but you may need to buy this coverage
• Leasing usually costs you more than an equivalent loan because you’re paying for the car during the time when it is most rapidly depreciating (losing the most value).
• Car Payments Forever! If you lease one car after another, monthly payments go on and on forever. Yes, you are just buying transportation but the longer you keep a vehicle after the loan is paid off, the more value you get out of it. Long term, the cheapest way to drive is to buy a car and keep it until it’s uneconomical to repair (i.e., until the wheels fall off).
• Lease contracts specify a limited number of miles. If you go over that limit, you’ll have to pay an excess mileage penalty. That can range from 10 cents to as much as 50 cents for every additional mile. So be sure to calculate how much you plan to drive. And no, you don’t get a credit for unused miles because you prepaid for the miles.
• Do you trash your vehicle? If you don’t maintain the vehicle in good condition, you’ll have to pay excess wear-and-tear charges when you turn it in. So if your known to hit poles, curbs or you’re a magnet for parking lot dents and dings, be prepared to pay at the end.  It’s more than normal wear and tear that you are usually responsible for.
• Need to get out of the lease? It might cost you. You will probably be stuck with thousands of dollars in early termination fees and penalties if you get out of a lease early—and they’ll all be due at once! Those charges could equal the amount of the lease for its entire term.
• With a few exceptions, such as window tinting, you need to bring the car back in “as it left the showroom” condition, minus usual wear and tear, and configured like it was when you leased it. You cannot modify the car.
• You’re still on the hook for expendable items such as tires, which can be more expensive to replace on a better-equipped vehicle with premium wheels.
• You may have to pay a fee when you turn in the vehicle at the end of the lease.

What Is a Car Lease?

Quite often a car lease is likened to an apartment lease. When you lease a car or an apartment, you lease the property for a specific amount of time and at a certain rate. You and the property owner have a mutual understanding that the assets will be returned in good condition.

In a car lease, you are financing the anticipated depreciation. A new car is worth $70,000 and we expect it to be worth $34,000 in 3 years. Thus, the depreciation is $36,000 and you will finance that $36,000 with interest (or $1,000 per month plus interest).

In regular financing, you are making payments of $70,000 plus finance charges.  Let’s say 48 months (4 years), that would make the payments $1,458 plus interest. 

As with most personal financial decisions, the pros and cons of leasing a car come down to a host of factors. Analyze your needs and budget and then shop to make sure you make the right decision for you.

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