When considering a lease purchase, the biggest difference between a straight lease and a straight purchase, is that you are only paying for a portion of the vehicle, and you can write off the monthly payments as an expense. The accountant for your business would be able to advise the best option for tax purposes.
A closed end lease agreement occurs when the customer chooses to return the vehicle to the dealer at the end of the lease period.
This method of acquiring a vehicle entails the buyer paying for the vehicle outright at delivery. This could involve a loan from a bank of the buyer’s choice, or funds directly from the buyer.
- Also called “walkaway lease” or “traditional lease”
- Typical term is 60 months (but can be different)
- At end of term, customer returns car back to dealer in good condition and has no further responsibility (car must be within mileage and condition limits set forth in agreement)
- Customer is only paying for a “portion” of the car; at lease end, the car still has “life” (value) left and can be sold again; therefore, customer enjoys lower payments during the term because he/she is not paying for 100% of the vehicle
- 100% of the lease payments can be expended – used as a write off against your taxes
- Oftentimes, lease rates are a little less than a straight purchase rate because under leasing laws, the lessor can depreciate the car as an asset, and can therefore give a more attractive lease rate
- Customer cannot depreciate the car since it is not an asset on the customer’s books
- Ideally, this works well when a customer does not want to keep the car for an extended amount of time (wants to keep more current body style vehicles).
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