Should retirees buy or lease cars?

Buying vs. leasing a car is a topic that never seems to stop. Either choice may be supported by reasonable reasons. You may put a stop to your monthly payments and drive as far as you like when you buy a car. Plus, you'll have an asset that you can sell or trade in for credit when you need a new vehicle. For these and other reasons, some financial advisors suggest owning an automobile instead of leasing.

Nevertheless, there are a few age-related benefits to leasing rather than owning a vehicle entirely for retirees. When thinking about leasing a vehicle, retirees should keep the following in mind:

MAIN POINTS

Leasing an automobile may be a more cost-effective option for retirees with a fixed income, as opposed to buying one.

Leasing a car enables a senior to return their vehicle when they become unable of driving.

For retirees who want to engage in extensive long-distance motor vehicle travel, it may be more cost-effective to buy a car instead of leasing one.

Acquiring a newly manufactured vehicle via a lease agreement, which includes important safety and comfort attributes, might potentially be more cost-effective compared to outright buying.

5 Things to Consider

1. The Latest Model

Leasing allows you to acquire a car with all the latest features and models for a reduced monthly price, which is a major perk. For those whose reflexes are deteriorating, this offers several benefits, the most notable of which are cutting-edge safety technologies like parking assist, lane departure alerts, rearview cameras, and GPS.

In addition to improved overall safety ratings, additional airbags and crumple zones are standard on newer automobiles. Thus, lessees save money compared to buying a new automobile since they obtain a vehicle that is both reliable and reasonably priced.

2. Lower Monthly Payments

Commercials frequently make leases seem easier and cheaper than they really are. The monthly cost of a lease, however, is often less than that of a vehicle loan.

Important: Reduced monthly payments may be more financially prudent for retirees living on a fixed income.

According to the top auto website Edmunds.com, the average monthly payment for a small SUV in the US will be $360 in 2021, compared to $482 for a purchase of the same vehicle. Be aware, too, that at the conclusion of the lease period, many contracts put on extra costs, such as those for going over the yearly mileage limit (usually 10,000–12,000 miles).

You should probably hold off on leasing a vehicle until you're largely using it for local errands if you want to use your early retirement to take many road trips to see loved ones or to take advantage of your new lifetime National Parks Senior Pass at Yellowstone or Yosemite.

However, a lease may be a good option for you if you don't drive very often and would like a cheaper monthly price. You can compare the costs of leasing vs. owning a vehicle on websites like MarketWatch.

3. Warranty Protection

Aside from the benefit of reduced monthly payments, the absence of repair expenses may provide significant financial and emotional comfort for those in retirement. One of the major challenges associated with automobile ownership is the occurrence of a substantial and unforeseen expense for repairs. This might be particularly concerning for a retiree who is meticulously overseeing a monthly budget.

Since the majority of leased cars are brand-new, they come with warranty coverage. There are two categories of warranties offered: bumper-to-bumper and powertrain. By having a comprehensive warranty, you have the privilege of taking your leased automobile to the dealership for any necessary repairs without incurring any extra expenses, as long as the issues are covered.

This guarantee provides a greater level of coverage compared to the powertrain warranty, which only protects the car's propulsion system and often has a shorter duration. It is important to note that the majority of lease agreements have a provision that holds you responsible for any significant damage or deterioration of the vehicle.3

4. Tax Deductions

If you are gradually transitioning into retirement, working part-time, and renting a car for that employment, you may have the opportunity to deduct a portion of your monthly lease payment, as well as the vehicle's decrease in value over time, on your income taxes under certain conditions. The Internal Revenue Service offers information on its website on the process of obtaining this tax deduction.

The deductions include the proportion of automobile use for business purposes, the monthly lease payment, and expenditures related to the vehicle, such as fuel and routine maintenance (excluding commuting expenses).5 It is inaccessible to those who finance the purchase of an automobile or acquire a car outright. Take note of this tax deduction for automobile leasing if you want to remain employed during your semi-retirement.

5. Ability to Walk Away

Although it is true that you will not own an item to sell or trade-in after a lease period concludes, a lease agreement provides you with the option to easily return the car and go. Retirees may find it advantageous to have a car dealership assume ownership of a leased vehicle, as it offers a convenient and trouble-free solution. It is also useful for elderly individuals who have reached a stage when they no longer want or are capable of operating a motor vehicle.

It is important to note that terminating an automobile lease before the agreed-upon term length may incur penalty charges. Typically, you will be obligated to cover the remaining lease payments.

Regardless of whether you return the automobile on schedule, there will always be a final reconciliation of the financial obligations at the conclusion of a lease. Anticipate incurring final expenses such as compensating for extra distance travelled, damages incurred, and any other expenses specified in the detailed terms of the agreement.

The Bottom Line

Acquiring a vehicle via a lease may not always be a logical decision. However, for those who are retired and have a limited income, opting to lease a car instead of purchasing one may be the preferable choice.

Irrespective of the choice you make, it is important to analyse the numerical data, evaluate all alternatives, and carefully assess the advantages and disadvantages in relation to your own circumstances. Utilising an automobile loan calculator might prove to be immensely beneficial in this undertaking. The ultimate decision you should make needs to be one that satisfies both your automobile and budgetary requirements.