There was a time when if a customer wanted to drive a new truck they had only one option, which was buying the truck outright. And they paid a pretty penny for that right. The minute they drove the truck off the lot,
On average, after one year of ownership, a $51,000 truck would depreciate in value to roughly $46,000 the minute it”s driven it off the lot, (that’s $5,000 for that first mile so don’t blink or you’ll miss it.)
And after a year, the average driver will have lost another $5,000 worth of depreciation.
By the end of year two, there’s an additional $6,000 lost in depreciation.
Each year, around 4.3 million Americans chose to either lease a truck or a car rather than purchase one.
And that roughly $16,000 in depreciation during the first two years has a lot to do with it.
A standard lease is typically two or three years. So when depreciation comes into play, for a great many, leasing is the way to go.
If a customer has the credit scores to lease, a truck valued at $51,000 would only require a $3,000 upfront payment, and the monthly costs for a 3-year lease would run around $1150 dollars per month.
On the other hand, if customers elect to buy, they would need to lay down twice the down payment amount, $6,500, and would pay a monthly fee of nearly $1400 per month.
Comparing a purchase of the truck with truck leasing, the totals are about the same. It will cost roughly $57,000 to either buy or lease the truck.
The big comparative differences are:
- Upfront fees are cheaper by $3500 with a truck leasing vs buying
- You pay $250 more a month with buying instead of leasing.
- With both, you needn’t worry about much other than regular maintenance during the first three years.
In exchange for the $250 less monthly payment and the $3,500 less upfront payment, if you want to own the truck, you would need to pay an additional $12,000 total with leasing, while the truck would be yours clear and free if you are buying.
With the truck value at this point being around $29,000 if you are willing to drive a used truck, then a customer would need to fork over an additional $12,000 to own a truck valued at $29,000.
There is, however, an additional value economically in leasing if a customer owns a business. The IRS considers a lease a business expense. As a result, almost the entire amount can be deducted from the business owners’ taxes.
Typically, a leased truck used for business purposes can be deducted at around 57.5 percent for every mile driven for business purposes.
Let’s say a business person has a lease that allows him to drive 15,000 miles per year and he uses the truck for 12,000 miles per year for business purposes. That’s 575 dollars per month that he can deduct straight off of his taxes.
While it’s true there are tax deductions for depreciation if the vehicle is bought for business, the rules regarding depreciation are much more complicated.
Things to watch out for when leasing
Although leasing works from many, there are important things to keep in mind. For one thing, you have to be careful with a leased vehicle.
When it is turned in, if it has lots of nicks and dings because it was taken off-roading, then the leader will need to pay a substantial fee for not returning the truck in good condition.
In addition, there are mileage limits. If a customer is leasing a vehicle with a 12,000 miles per year limit but drives 15,000, then he will wind up paying an additional $1500, at 30 cents a mile.
Finally, lease customers should always buy gap insurance from their insurance agency.
If you wrap your shiny truck around a tree, the insurance will pay off only the estimated market value of the truck, not what you are required to pay in your lease agreement.