Whether you should lease or buy a car depends mainly on cash flow and the interest rates. If interest rate on the lease is high, then financing is better. If monthly loan installments are too high, then leasing would be better. Leases also have 2 types – capital leases and operating leases. The difference between the two leases is that in an operating lease, there is an option for the lessee to buy the car at the end of the term of the lease. In a capital lease, the lessee must purchase the car or pay an option price as low as the final monthly lease payment. Therefore, capital leases are like financing your own car and should be treated as such.

If you use your car for business, certain amounts of your lease payments can be deducted for business. If you own the car, then certain amounts of the loan interests and depreciation of your car can be deducted. Your accountant will be able to calculate reasonable amounts to deduct at tax filing time. And so you may also wonder, would it be better to finance the purchase of the car or purchase it with cash? If your cash after tax is earning lower than that charged by the lender or the bank, then you probably should purchase with cash. Or course, this also depends on your cash flow.

Therefore, you will need to consider the following factors which affect a car lease in order for you to decide on whether you would prefer to lease or buy a car: