A reader recently asked me one of the most basic personal finance questions: Is it better to buy or lease a car? Easy one, right? Buying a car and keeping it for a long time is the choice of frugal people everywhere.
But the real-life experience of drivers shows there’s room for both owning and leasing. Business owners and contractors may be able to deduct some or all of their vehicle lease payments on their taxes. Some people like getting a new car every few years, and they’re willing and able to pay for it via lease payments. To find out more about the benefits of buying and leasing, check out a recent discussion on my Facebook personal finance page.
A few points worth noting from that conversation:
- Leasing is a poor choice if you do a lot of driving and are at risk of incurring penalties for going over the allotted number of kilometres on your lease. Another risk is that your leased vehicle could be damaged or badly worn enough at the end of your lease term that it incurs repair charges.
- Leasing over and over means perpetual monthly payments, but your car is always or mostly under warranty; this limits your maintenance bills to just oil changes and inspections or tune-ups.
- If you lease a car used to generate business income, you’ll need to keep careful track of your mileage and the purpose of your trips – business or personal. You can deduct expenses for business use, but not personal. Here’s some information to help you decide whether to buy or lease a vehicle you’ll use for business.
The top choice of frugal-minded car owners: Buy lightly used cars, preferably with cash, to minimize the impact of depreciation, and then hang onto them as long as you can.
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Rob’s personal finance reading list…
Best high interest savings accounts
The Mr. Thrifty blog guides you through a list of the banks offering the highest rates on high-interest savings accounts. The best rate on the list is 2.8 per cent.
Fixer-uppers are no bargain
A U.S. study finds that buying a lower-priced home in disrepair may not save you money after paying for renovations. The costs most likely to exceed your expectations are related to heating and cooling, as well as plumbing.
How to ask for a raise
We can talk for days on end about ways to spend less and save more, but nothing beats a pay increase for improving your finances. Here’s a detailed action plan for nailing a raise.
She used to have one savings account – now she has seven
This is smart – organize your savings by setting up multiple savings accounts, each with a different purpose.
Today’s financial tool
For Globe and Mail subscribers, a guide to condo-buying that includes advice on hidden costs.
Q: I'm curious to know how banks make money on my credit card if I pay the balance off each month.
A: Don’t worry about the banks – they make out fine if you pay your bill on time every month. There are annual fees on many credit cards, a markup on transactions in foreign currencies and small fees merchants pay for the convenience of offering customers the option of paying with plastic.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
In case you missed these Globe and Mail personal finance-related stories
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