The vast majority of people out there believe that there are two options when you want to own or take possession of something: you can buy it outright or rent it. The problem with this is that for many people, purchasing something outright–especially if it is a larger purchase like a home or a car–is often too expensive. And renting? Well, that comes with a host of its own problems as well. So what are you supposed to do? You need to furnish your home. You need reliable transportation to get to work. Welcome to the secret third option: leasing.
Leasing often gets a bad rep because it is seen as a temporary purchase–even more so than renting. And it is true: often when your lease is up on whatever it is you’ve been using, you do have the option to turn that item back in. What many people don’t realize is that leasing is often the best option for people who need to make a larger purchase but don’t necessarily have the funds or the credit to buy it outright. That’s just one of the biggest misconceptions about leasing. Here are five more.
#1. Your ownership is only temporary
One of the big qualities that renting and leasing have in common is that once a lease or rental term is up you have a choice to make: you can hand your ownership of the item back over to the owner or you can negotiate a new lease or rental agreement. If you live in a rental home, you likely do this every year, when you choose whether to re-up your rental agreement (usually called a lease just to make the issue more confusing) or move to another location.
#2. Buying Gives me Assets, Leasing Gives Me Nothing
This is a common thread, especially among people who are trying to decide if they should lease or buy a car. The idea is that, after they pay off their loan, they own that car. They can keep it or sell it for a nice chunk of change. This is certainly true, but the math there doesn’t exactly add up. For example, while you do typically pay a set up fee to get your lease started, your average monthly payment is often hundreds of dollars less than you would spend on a loan payment (assuming your loan period is the same as the lease period). At the end of your lease you would likely have saved about as much as the car will be worth at the end of the lease term. How many other ways can you use that money?
#3. Leasing is Expensive
Again, we understand why it looks that way. With leasing, you’ll always have a monthly payment. But as we already stated the amount you save with a lease over taking out a loan can be substantial. And, if you are leasing equipment your lease payment will often cover the cost of repairs, installation, etc. When you buy outright or take out a loan, you have to cover those costs yourself. You might even be able to write off the cost of the lease on your taxes, which can save you even more money in the long run as the value of leased equipment doesn’t depreciate the way owned equipment depreciates.
#4. The Terms Are Outrageous
There are some strict terms associated with leasing. That is true. Even so, if you want to break your lease, there are options available to you. For example, you might simply decide that you want to purchase the equipment permanently. You might find a better deal with another company. If that’s true, make sure you show your leasing agent proof of that deal in writing as you can often get them to match rates (like lenders, leasing companies want to keep you on as a client).
#5. Leasing is Only Available for Big Items
This myth is flat out false. While the most common leases are written out for automobiles and heavy equipment, it is just as possible to lease furniture for your home or office. You can lease exercise equipment. You can lease pretty much any item that doesn’t get “used up.” You cannot, for example, lease office supplies like paper, pens, etc. You can, however, lease the office’s printer.
Whatever it is that you decide to lease, make sure you work with a trusted agent. There are people out there who will want to take advantage of the novice leasers. Get your contracts in writing. Make sure you understand and agree to all of the terms within that contract before you sign it. Ask around for referrals, etc. Do your due diligence. When you do, you might be surprised by how beneficial leasing can be!