Question

Refl   Reflect upon the differences between purchasing a $30, 000 vehicle and leasing it. Provide one scenario in which it would be advantageous for a com company to purchase the vehicle, and another scenario in which it would be be advantageous to lease.

Answer 1

From my perspective, the most important differences between a lease and a purchase are:

• Initial cash outlay is generally lower on a lease
• Leasing carries a tax benefit vs. purchasing
• Leasing is generally higher cost overall
• Leasing carries use and maintenance requirements which, if not observed, can add to cost

A situation in which it would be advantageous to a company to purchase a vehicle would be a delivery or maintenance vehicle which will not require upgrades and may be subject to heavy use/abuse and mileage. Because there is no need for a "new" vehicle in the short term or at regular intervals for the vehicle to fulfill its purpose, the flexible terms of a lease offer no benefit. Because the vehicle will be used heavily, the mileage and maintenance requirements of a lease may prevent the company from fully utilizing the vehicle as it needs to. Because the vehicle can be used over a long time, the larger upfront cash outlay is not a significant consideration.

A situation in which it would be advantageous to lease would be a vehicle for a client facing salesman. Because impressions on client are an important component of the vehicle's use, such a vehicle will likely be replaced regularly.