Capital Budgeting Decision Leasing Vs. Essay

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Some people compare buying a car to renting an apartment: "you pay a monthly fee to use it but don't own it -- and aren't making payments toward ownership. The leased vehicle remains the property of the lessor -- the company that issued the lease" (Peters 2009). However, cars depreciate rather than appreciate in value, unlike real estate. Monthly lease payments are cheaper than payments on a new car, a lease is generally of shorter duration than a car loan. "Another nice thing about car leasing is that you're always driving a new or nearly new vehicle. And of course you don't have to worry about the potentially expensive repair and/or maintenance problems that inevitably crop up as a car ages -- and gets out of warranty" (Peters 2009) the leased car will be under factory warranty for the duration of a standard two-year lease and may even cover routine maintenance, such as oil changes.

But at the end of the lease, the renter is that much the poorer, with no asset in exchange for the 'rent' he or she was paying to the lender. A car owner making car payments still has the equity, and can use or sell the car. "Though it will continue to depreciate with each passing year, so long as it's still serviceable transportation, it will always be worth something.

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That value can be used as a trade-in; or the vehicle can be sold privately to help raise money to pay for a new one -- or for some other need" (Peters 2009).

In general, there are certain people who should never lease cars -- people who have long commutes, for example, as leases limit the amount of miles a renter may drive before the end of a lease, and the charges for excessive mileage are so high leasing for a heavy driver could actually cost him or her more than buying the car. The cost of repairs such as 'dings' or scrapes can also be exorbitant, so someone who must leave his or her car outside in parking lots, or must drive through high-crime areas a great deal would be ill-advised to lease a vehicle.

So, who should lease a car? Someone who only intends to spend a few years in an area or someone who needs a flashy new car for his or her business might consider leasing. Also, the cost of leasing can be tax-deductible, for an individual who uses it for legitimate business purposes. Thus the maxim that 'if you intend to keep it/use it' within the area for more than five years generally holds true for cars, but with a few caveats.

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